InnovationExport Market Share: Pharmaceuticals
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[ February 2010 ]
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Putting pharmaceuticals in context
The pharmaceutical industry is the bridge between lab discovery and clinical practice. A successful drug can empty hospital wards, as tuberculosis and polio vaccines did in the 1940s and 1950s. The industry’s ongoing research is one of the mainstays of modern medicine and, as such, an excellent barometer of a country’s innovation capacity in health sciences.
More and more, biotechnology methods—using genetic engineering as well as cell- and tissue-culture technology—are used to manufacture pharmaceuticals. These products are also known as biopharmaceuticals. The Canadian pharmaceutical and biopharmaceutical industry includes brand-name pharmaceutical companies, biotech companies developing biopharmaceutical products, and manufacturers of generic drugs.
Is Canada achieving its potential in pharmaceuticals?
Canada gets a “D” grade and ranks 14th out of 17 peer countries in the ratio of its share of 17-country pharmaceutical exports to its share of 17-country total exports. Despite its potential, the Canadian pharmaceutical sales represents only about 2 per cent of global pharmaceutical sales.1
Although Canada has a lot of scientific strength in biopharmaceuticals, the industry is still mainly composed of early-stage research companies, many of which are years away from clinical trials and even further away from significant revenues.
Switzerland, home to many of the world’s largest pharmaceutical companies, tops the list. Ireland’s progressive growth in pharmaceuticals has moved the country steadily up the rankings, from a “C” in the 1980s, to a “B” in the 1990s, and to a second-place “A” in the most recent decade. As a result of an aggressive innovation strategy implemented over the past three decades, nine out of the top ten global pharmaceutical companies have substantial operations in Ireland. Seven out of the ten world’s top-selling drugs, including Lipitor and Zocor, are manufactured in Ireland by some of the almost 25,000 individuals employed by this industry. 2
How has Canada performed historically?
Canada has earned a “D” in this category for nearly three decades. Canada’s ratio of its share of OECD pharmaceutical exports to its share of total OECD exports has consistently been well below 1, meaning that it has not had a comparative advantage in the industry.
Pharmaceutical companies have increased their spending on research and development over the past few decades.3 In 2007, pharmaceutical companies reported total R&D expenditures over $1.3 billion.4 Despite these investments, Pricewaterhouse Coopers notes that R&D productivity—which they define as the ability to transform R&D into valuable products that can be priced and sold—has declined, partly due to:
- the saturation of many large therapeutic classes
- a more risk-averse regulatory environment
- a challenging payer environment for new approaches for treatment.5
Another interesting trend is that, given new advances in genomics and personalized medicine, R&D investments are less frequently pursuing blockbuster drugs (a drug that generates annual revenues over $1 billion), and are focusing more on drugs targeting a smaller number of patients. Sales of patented drugs in Canada have increased significantly over the past decades, reaching $13 billion in 2008.6 Compared with other advanced countries, Canadian prices for patented medicines—while still less expensive than U.S. prices—remain high.
Patent drug R&D spending, as a percentage of revenues, is higher than in other advanced sectors in Canada—at 8 per cent.7 Most of the top R&D intensive firms in 2008 were pharmaceuticals/biotech companies, according to the consulting firm Research Infosource.8 Although Canada’s biotech sector has grown significantly during the past two decades, it has suffered recently from difficulties accessing R&D financing and bringing new therapeutics to market.9 The number of biotech Canadian companies dropped 11 per cent in 2008.
The Canadian generic market has also grown significantly. Generics accounted for more than 51 per cent of prescriptions and around 23 of pharmaceutical sales in 200810—up from 40 per cent and 15 per cent respectively in 2001.11 This growth has resulted from the expiry of patents of several blockbuster drugs and favourable generic drug policies. Apotex, a Canadian-owned generic drug company, dominates the Canadian generic market and is the fifth top pharmaceutical company in Canada.12
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Use the pull-down menu to compare the change in Canada’s pharmaceuticals export market share with that of its peers.
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What can Canada do to move up to the front of the class?
Given that biotechnology companies are increasingly generating new knowledge, tools, and substances for the pharmaceutical industry, the biotechnology sector has become a driving force of pharmaceutical innovation.13 Strengthening the biotechnology sector in Canada, therefore, will significantly improve opportunities to advance Canada’s global pharmaceutical position.
Scientific papers provide an excellent indicator of Canada’s promise in biotechnology-based therapies. Biotech companies in Canada are researching and developing promising new drugs to treat cardiovascular diseases, cancer, and central nervous system disorders, including Alzheimer’s. Currently, 22 biotech companies have drugs in phase three trials.14 This is the result of a depth of scientific research in the biopharmaceutical field in Canada, supported significantly by government funding.
But so far, Canada’s patenting track record has not been strong enough to make it a powerhouse of innovation in the industry. If Canada does not find a solution to the scarcity of funds required to scale up its comparatively small biopharmaceutical companies to an efficient size and to nurture a strong domestic industry, many of the innovative products in the pipeline will be commercialized by foreign companies with little economic benefit for Canada.
Can Canada ever catch up to peers like Switzerland?
Canada’s performance has the potential to improve, given that growing biotech companies participate in significant, knowledge-rich expert networks and have strong ties to university and teaching hospital research. The industry is also consolidating—something it needs to do to prosper in global markets. Merger and acquisition deals announced in Canada’s biopharmaceutical industry in 2008 included two of the largest deals ever seen in this industry in Canada: Aspreva was bought for US$0.9 billion by Galenica Group and Axcan was bought for US$1.3 billion by TPG Capital.15
Besides the challenges of capital availability and commercialization, another constraint on Canada’s performance is that it lacks experienced global brand managers, especially those with expertise in launching and marketing highly regulated pharmaceutical (including biopharmaceutical) products in global markets. Canada’s pharmaceutical industry will continue to grow and improve. But pharma and biotech will require management and capital depth to take advantage of the scientific resources available in Canada.
1 Industry Canada, Canadian Pharmaceutical Industry Profile [online, cited January 25, 2010]. http://www.ic.gc.ca/eic/site/lsg-pdsv.nsf/eng/h_hn00021.html
2 Forfás, Health LifeSciences in Ireland—An Enterprise Outlook, October 2009 [online, cited January 25, 2010]. http://www.idaireland.com/news-media/publications/library-publications/external-publications/Health_%20Life_Sciences_%20in_Ireland.pdf
3 Stephen Li and Anne Tomalin, “Patentees Research and Development Expenditure in Canada,” Journal of Pharmacy & Pharmaceutical Sciences, 5,1 (2002) [online, cited January 25, 2010], pp. 5–11. http://www.ualberta.ca/~csps/JPPS5(1)/S.Li/patentees.pdf
4 Patented Medicine Prices Review Board, Annual Report 2008 (Ottawa, PMPRB, 2008) [online, cited January 25, 2010], p. 41. http://www.pmprb-cepmb.gc.ca/cmfiles/PMPRB-AR08-E.pdf
5 PricewaterhouseCoopers, Pharmaceuticals and Life Sciences, North American Mergers and Acquisitions Overview, Q3 2009 [online, cited January 25, 2010]. http://www.pwc.com/en_CA/ca/pharma-life-sciences/publications/mergers-acquisitions-overview-q3-2009-12-en.pdf
6 PMPRB, Annual report 2008, p. 40.
7 PMPRB, Annual report 2008, p. 42.
8 Research Infosource, Canada’s Top 100 Corporate R&D Spenders List 2009 [online, cited January 25, 2010].
9 Ernst & Young, Beyond Borders: Global Biotechnology Report 2009 [online, cited January 25, 2010]. http://www.ey.com/Publication/vwLUAssets/Beyond_borders_2009/$FILE/Beyond_borders_2009.pdf
10 RNCOS, Generic Drug Market in Canada, (August 2009) [online, cited January 25, 2010]. http://www.rncos.com/Report/IM598.htm
11 IMS Canada (May 16, 2002), Year-end data confirm anticipated diabetes pandemic, press release [online, cited January 25, 2010]. http://www.imshealth.com/portal/site/imshealth/menuitem.a46c6d4df3db4b3d88f611019418c22a/?vgnextoid=4d06ef8282f75210VgnVCM10000071812ca2RCRD&vgnextfmt=default
12 Industry Canada, Canadian Pharmaceutical Industry Profile [online, cited January 25, 2010]. http://www.ic.gc.ca/eic/site/lsg-pdsv.nsf/eng/h_hn00021.html
13 OECD, Innovation in Pharmaceutical Biotechnology: Comparing National Innovation Systems at the Sectoral Level, (April 11, 2006) [online, cited January 25, 2010]. http://www.oecd.org/dataoecd/29/59/36446831.pdf
14 Ernst & Young, Beyond Borders: Global Biotechnology Report 2009 [online, cited January 25, 2010]. http://www.ey.com/Publication/vwLUAssets/Beyond_borders_2009/$FILE/Beyond_borders_2009.pdf
15 Ernst & Young, Beyond Borders: Global Biotechnology Report 2009 [online, cited January 25, 2010].. http://www.ey.com/Publication/vwLUAssets/Beyond_borders_2009/$FILE/Beyond_borders_2009.pdf
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