How To Build A Pharmaceutical Industry

how to build a pharmaceutical industry: qubecs story
by david griller and daniel denis
ISBN 978-0-9811583-0-3 Price $24.95
How to Build a Pharmaceutical Industry:
Qubecs Story by
David Griller
and
Daniel Denis
Copyright 2008 by SECOR Consulting Inc. All Rights Reserved. Printed in Canada. No part of this book may be used or reproduced in any form or by any means, or stored in a database or retrieval system, without prior written permission of the publisher except in the case of brief quotations embodied in critical articles and reviews. Making copies of any part of this book for any purpose other than your own personal use is a violation of Canadian Copyright Laws. All requests for reproduction may be addressed to: SECOR Consulting Inc. 555 Ren-Levesque West, Montral, H2Z 1B1.
ABOUT THE AUTHORS
David Griller is a partner in SECOR Consulting and has a passion for life sciences. His clients range from major pharmaceutical companies to small biotechnology firms involved in drug discovery and diagnostics. David also works with the public sector providing advice on policy and technology trends. He has a Ph.D. in Chemistry from University College London and is a fellow of both the Royal Society of Canada and the Canadian Institute of Chemistry. David spent half his career as a research chemist at the National Research Council of Canada and the other half in business. He has worked in management, strategic planning, and consulting with Plastic Constructions Inc. Deloitte Haskins and Sells, and KPMG. Daniel Denis is a specialist in regional development and economic analysis. He is a partner in SECOR Consulting and has also served as its President. Daniel has a Masters in Economic Science from the Universit de Montral. Daniels consulting practice covers a range of activities from strategic and business planning with firms in high-tech sectors to the management of research and its economic impacts. With his broad knowledge of Qubecs economy, he is a frequent commentator on economic affairs in the media. Daniel has worked extensively with the pharmaceutical industry in Qubec and with hospitals and research institutions. Prior to joining SECOR, Daniel was an economist with the National Bank of Canada. about secor SECOR Consulting is Canadas largest strategy consulting firm. SECORs clients are mainly large companies that want frank, pragmatic advice on how to build for the future. SECORs consultants work closely with senior managers.
SECORs practice in life sciences has grown very rapidly over the last decade. Clients include firms of all shapes and sizes including a number of major pharmaceutical companies. SECOR has worked with federal and provincial governments as well as organizations that work to promote innovation. Canadas economic and social well-being depends on innovation. This is what drives SECOR and its clients. About the Authors Acknowledgements The authors would like to thank Mark Legault of Pfizer Canada Inc. for his continuous support and advice in the development of this book. We also express our appreciation to our colleagues at SECOR. Vicky Wong helped us with extensive research, particularly on European public policies related to the pharmaceutical industry. Marcel Ct, Michel Leblanc, and Philippe Martel gave us very helpful advice on the development of the text and on the public policies that helped make Qubecs pharmaceutical sector flourish. We also thank Hugues Lachance of KPMG for sharing data on Qubecs fiscal approach.

TABLE Of CONTENTS
About the Authors How Did Qubec Build a Pharma Industry? The Story in a Nutshell How Qubec Succeeded Innovation Fixes a Faltering Economy Social Upheaval and Dying Industries Weaken the Economy The Community Supported Innovation Levering Qubecs Rich Intellectual Assets Who Is Responsible for What in Canada? Changes in Policies on Intellectual Property Improvements in Intellectual Property Protection Qubec Captures a Major Share of R&D Investment Sustained Effort Pays Off A Brief Portrait of Qubecs Life Sciences Sector The Life Sciences Sector Urban Geography Pharmaceutical and Biotechnology Companies Clinical Research Organizations Publicly funded Research Organizations Public Research funding Venture Capital Examples of Organizations Supporting the Cluster A Healthy Cluster Economic Benefits Investments in R&D R&D in Qubec Compared to Sales Employment financial Impact on Quebecs Economy Taxes Paid Summary of Economic Impacts
i 1 1 1 3 3 4 5 5 6 7 8 9 11 11 11 11 12 12 15 15 16 17 19 19 20 23 27 28 29
1 1.1 1.2 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 3 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 4 4.1 4.2 4.3 4.4 4.5 4.6
5 5.1 5.2 5.3 5.4 5.5 5.6 6 6.1 6.2 6.3 6.4 6.5 6.6 7 7.1 7.2 7.3 7.4 7.5 8 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9
Qubecs Sustained Pro-Pharma Policies Additional Initiatives Corporate Tax Rates R&D Tax Credits The fifteen Year Rule What if Qubec Had Not Taken a Pro-Pharma Stance? Lessons from Qubecs Experience Qubecs Approach To Pharmaceutical Insurance Insurance for Pharmaceutical Products in Canada Lack of Actuarial Soundness in Drug Insurance Qubecs Approach to Pharmaceutical Insurance Qubecs 2007 Policy on Medications Interprovincial Comparisons Conclusion Could Canada Do More to Build the Sector? Progress Since the Nineteen-Eighties Why Innovation in the Pharmaceutical Industry is Unusual Canadian Mechanisms that Control Access What Improvements Could be Made? Summary International Winners and Losers The Public Policy Dichotomy The Locus of R&D Has Moved from Europe to North America Some Examples of the Transition Why Did R&D Shift from Europe? Examples of Price Control Schemes Bayers Experience with Gray Markets Some Disagree with the Concept of R&D Migration Potential Impact of China and India ConclusionCanada and Qubec at the Crossroads
31 31 31 34 36 38 40 43 43 44 45 46 47 48 49 49 49 51 52 54 55 55 56 59 60 61 62 62 64 66
9 9.1 9.2 9.3
Lessons Learned From Qubecs Experience What Can Be Learned from Other Regions? Can Qubec Continue to Grow its Industry? The Bottom Line Appendix 1: Pharmaceutical Sector Profile
67 68 69 69 71
HOW DID QUBEC BUILD A PHARMA INDUSTRY?
1.1 the story n a nutshell Qubec is Canadas second largest province. With 7.6 million people it makes up 24% of Canadas population. The Montral region is the engine of Qubecs economy and the jewel in Montrals industrial crown is the biopharmaceutical industry. Montral is home to much more than a biotechnology cluster although Qubec has many biotech firms. Montral attracts almost half of Canadas multinational pharmaceutical investments and, by most metrics, is a worthy international competitor to any other city renowned for its pharmaceutical industry. Was this an accident of history? Were Quebecs researchers and infrastructure a must have for pharmaceutical firms? Did Qubec buy its good fortune with subsidies and grants or did it act wisely over time to build its pre-eminent position? In a nutshell, Qubec built its pharmaceutical industry through a reaction to economic adversity. In the mid-1980s the economy of the Montral region faltered. Politicians and business leaders mobilized their efforts to focus on three major knowledge-based sectors, pharmaceuticals, aerospace, and information and communications technologies (ICT). Over the next two decades these sectors helped revitalize both the economy of Montral and that of Qubec as a whole. 1.2 how qubec succeeded Nothing came easily especially in the pharmaceutical area. Qubec worked hard with the federal government to ensure that the pharmaceutical industry was awarded proper patent protection. As a pharmaceutical insurer, the province offered a broad formulary of drugs. In addition, Qubec introduced the 15 Year Rule. Under the rule, patented drugs are reimbursed for 15 years after they are listed on the provinces formulary even if less expensive generic versions become available. These initiatives were more than compensated for by the tax revenues generated by the thriving pharmaceutical industry. 1
How Did Qubec Build a Pharma Industry?
At the global headquarters of pharmaceutical firms, investment priorities were evaluated country by country and region by region with cost of doing business, market access, and pricing being key determinants. By consistently sending positive signals that it was open and ready to do business, Qubec captured more than its fair share of the industrys spending. In religion, a persons faith is not judged in absolute terms but on whether he or she is ascending or descending the ladder of piety. So it is with the investments of multinational pharmaceutical firms. They respond more to changes in the direction of public policy than to absolute positions. for twenty years Qubec has been moving steadily in a positive direction. In the main, this is what it took to succeed.
INNOVATION fIxES A fALTERING ECONOMY
2.1 socal upheaval and dyng ndustres weaken the economy Montral is everything that a great city should be. Built on hills and cascading down to the broad expanse of the St. Lawrence River, it is a fusion of villages, each with its unique culture and character. Montral drives Qubecs economy but in the mid 1980s, Montral was in crisis. The province had been through two decades of dramatic social change. In the 1960s, influential Qubecers precipitated the quiet revolution.1 They held the view that the province had fallen behind Western ways and values especially in education and in the role of the state. Qubec entered a period of modernization that involved the rise of secularism and an enhanced role for government. Networks of state universities and public colleges were established. Hydro Qubec, the electricity giant, was formed through a program of nationalization as was a state pension fundCaisse de dpt et placements du Qubec. The changes kept coming irrespective of which political party was in power. However, the Charter of the french LanguageBill 101was transformative.2 It defined the linguistic primacy of french when English was Qubecs language of business. The Bill recognized the fact that 80% of Qubecers used french in their daily lives but it shook the confidence of the Anglophone community. Many thousands of Anglophone entrepreneurs left the region and many important corporate head offices were relocated. In 1952, for example, Montral was home to 20% more head offices of financial institutions than was Toronto. By 1988 it had 60% less. US investments in the Canadian automobile sector in the region around Toronto and heavy Qubec taxes on high wage earners spurred the migration.3 The transformation hurt the economy of Montral.
1 See for example: http://faculty.marianopolis.edu/c.belanger/quebechistory/events/quiet.htm; http://history.cbc.ca/history/?MIval=EpisContent&series_id=1&episode_id=16 2 http://www.oqlf.gouv.qc.ca/english/charter/index.html 3 Pour un redressement durable. Plan stratgique du Grand Montral. Gouvernement du Qubec 1992.
Innovation Fixes a Faltering Economy
In the midst of this social upheaval, heavy industry in Montral went into a downward spiral. The plants and factories in the east-end of the city fell into deep decline just as they did in Pittsburgh, Cleveland, and the mill towns of Northern England. By 1988 the unemployment rate in Montral stood at 9.3% which was the highest of all major conurbations in North America. The economy of Montral and, hence, of Qubec stalled. 2.2 the communty supported nnovaton The federal government commissioned a strategic planning exercise to revitalize Montral that was documented in the Picard Report. The report identified economic prioritiespharmaceuticals, aerospace and information and telecommunications technologies (ICT) among themand made little or no effort to resurrect those industries that were failing. The report insisted on a new territory for action, that of the city-region, which embraced the Municipality of Montral and the surrounding urban area. The report saw Montral as an international player being close to New York and other major financial and industrial centers on the Eastern Seaboard of the US. The plan did not trigger immediate investment but provided a conceptual framework for future thinking and action. It was supported by all levels of government and by the major trade union of the province, the federation of Workers of Qubec (fTQ). One key action that followed the report was the introduction of generous research and development tax credits that did much to encourage the development of the high-tech sector.4 The plan was not revolutionary but evolutionary. Qubec was building a new industrial culture. Academics, politicians, public servants, and business leaders were jointly developing ideas on industrial clusters and how to grow them.5 They developed a community purpose that transcended political divides and they established public policy instruments and financial investment tools to achieve their goals.6 Interestingly San Diego stalled economically some years after Montral. The Cold War ended and San Diegos indigenous defense industries sputtered. The community rallied around essentially the same industries
4 5 6 J-A. Boudreau, P. Hamel, B. Jouve, and Roger Keil: Progress in Planning, vol.66, pp7, 2006. See for example: http://www.cirst.uqam.ca/chaire_gestion/pdf/Niosi-Bas-EPS2003.pdf See: http://www.sandiego.gov/economic-development/glance/economy.shtml
that Qubec favored and built highly successful biopharmaceutical and ICT sectors. In Qubec and San Diego, economic adversity triggered intelligent policies and broadly-based community action aimed at rebuilding through innovation. 2.3 leverng qubecs rch ntellectual assets The Picard Report turned its back on Qubecs old industrial economy and targeted knowledge-based industries for economic growth. Montral was ideally suited to this purpose. Its renowned centers of higher education McGill University, Universit de Montral, cole Polytechnique, cole des Hautes tudes Commerciales, and the Universit de Qubec Montral produced the highly qualified people needed by the new economy. McGill and its affiliated teaching hospitals provided an excellent nucleus of biomedical research. Indeed, pharmaceutical firms had been drawing on this rich resource since the early years of the twentieth century. However, major shifts in provincial policies had to be deployed to lever these impressive assets to the full. Qubec argued convincingly for improvements in Canadas intellectual property protection and also developed its own policies to encourage the pharmaceutical industry. In Canadas federal system bringing about these changes was not easy. 2.4 who s responsble for what n canada? The Canadian federal system is a complex web of political relationships. The structural integrity of the web is maintained through tension between the provincial and federal governments. Money and control keep relationships taut especially in the delivery of healthcare, now the major item of expenditure in all provincial budgets. The Canada Health Act is a federal statute that guarantees access to healthcare for all Canadians.7 However, it does not specify how healthcare is to be managed and delivered. This is left to the provinces. Interestingly, Canada is one of the few remaining countries on earth that bans privatelyfunded healthcare, making the provinces the exclusive suppliers of services and the managers of health outcomes. Somewhat surprisingly, the current Canada Health Act and its predecessors do not guarantee Innovation Fixes a Faltering Economy
http://www.hc-sc.gc.ca/ahc-asc/media/nr-cp/2002/2002_care-soinsbk4_e.html
access to pharmaceutical products.8 In 1957 and 1968 when key federal laws on healthcare were promulgated, relatively few drugs were available and constituted a minor component of expenditures. The last major piece of federal healthcare legislation eliminated user fees for medical services. Access to drugs was again left out; it was as simple as that. All provinces have developed some kind of pharmaceutical insurance coverage for seniors, people with disabilities, and those needing social assistance. Most also provide catastrophic drug coverage to cover cases where a familys drug bill consumes an excessive amount of its income.9 However, roughly half of all Canadians receive some kind of pharmaceutical coverage from their employers and are not covered by government plans. Public policy makers in provincial governments are very much aware of the interplay between industrial policy, healthcare delivery and the cost of pharmaceutical products which has risen rapidly in recent years. Most have tried to manage healthcare expenditures through cost-containment practices. They have paid relatively scant attention to the impact of these efforts on industrial innovation or, indeed, health outcomes. Qubec took a different view and paid careful attention to the relationship between healthcare and industrial policies beginning with its support for enhanced intellectual property rights in the mid-1980s. 2.5 changes n polces on ntellectual property Up until the early 1990s, Canada provided only meager pharmaceutical intellectual property rights. Under a compulsory licensing scheme established in 1923, Canada had allowed generic drug firms to copy and market patented products before patent expiry. A condition of licensing was that the active ingredient be manufactured in Canada. The patent holder received a small royalty in return. In 1969, the Act was amended to allow generic drug companies to import active ingredients and to formulate them into final products for sale. The royalty rate paid to brand firms was 4%. The Act created a golden opportunity for the generic drug industry. Several talented entrepreneurs quickly built highly successful companies: Barry ShermanApotex (Toronto), Leslie DanNovopharm (now owned by Teva, Toronto), and
8 9 http://www.hc-sc.gc.ca/ahc-asc/media/nr-cp/2002/2002_care-soinsbk4_e.html See: Drug Expense in the Canadian Population: Protection from Severe Drug Expenses fraser Group Tristat Resources August 2002.
Morris Goodman and Ted WisePharmascience (Montral). These firms remain leading players in Canadas generic drug industry. Canadas policies built a strong generic drug industry but effectively abrogated international standards for intellectual property (IP) rights. Under pressure from the brand-name pharmaceutical industry, the federal government established a Commission of Enquiry on the Pharmaceutical Industry in 1984.10 The Commission did not find a great deal wrong with the compulsory licensing approach and recommended some modest IP enhancements and a complex formula for paying royalties to patent holders. In Qubec, however, a broadly-based coalition of business leaders, industry organizations, and politicians pushed the federal government hard for much better patent protection than the Commission of Enquiry proposed. The coalition was successful and federal legislation went much further than the Commission recommended. 2.6 mprovements n ntellectual property protecton Bill C-22 passed into law in 1987. It provided substantial improvements to the rights of Canadian pharmaceutical patent holders. following regulatory approval of a product by Health Canada, a brand-name manufacturer received 10 years of protection from compulsory licensing if the generic firm proposing to copy the product imported the active ingredient. It received 7 years if the ingredient was manufactured in Canada. The Bill also created the Patented Medicines Prices Review Board.11 This is a quasijudicial body designed to ensure that prices charged by patent holders are not excessive.12 In return for these improvements, the Pharmaceutical Manufacturers Association of Canada made the commitment that its member companies would increase the ratio of R&D to sales to 8% by 1991 and to 10% by 1996. This was a substantial increase over the figure of 4.9% reported in 1984. Industry did indeed meet the targets.
10 The Eastman commission. 11 http://www.pmprb-cepmb.gc.ca/ 12 The PMPRB has steadily transformed itself into a price regulating body contrary to the intent of the original legislation.
In 1991-1992 Canada was negotiating the North American free Trade Agreement13 with the US and Mexico. It was under pressure to subscribe to international patent norms. Bill C-91 came into force in 1992. The Bill honored international norms, and abolished compulsory licensing altogether. 2.7 qubec captures a major share of r&d nvestment Of course, the pharmaceutical industry argued in favor of these improvements to patent rights. As importantly, the Government of Qubec lobbied hard with the federal government to upgrade rights as part of its plan to encourage pharmaceutical investment in the province. Qubec also made substantial increases in tax credits provided to firms involved in R&D at precisely the time that Bill C-22 came into law.14 By contrast, Ontario with its important generic drug industry was less enthusiastic. When the dust settled, industry clearly understood that its support came from Qubec and it weighted its investments accordingly. Qubec continued to send positive signals to the brand-name pharmaceutical industry. The provincial drug plan generally listed more pharmaceuticals for reimbursement than other provinces. In addition, Qubec insisted on receiving Best Available Canadian Price from firms. In return, it allowed doctors to prescribe and patients to demand brandname products for a period of fifteen years after their initial listings on the provincial formulary and even if less expensive generic versions were available. Qubecs approach did not in fact cost a great deal but it did generate a huge amount of goodwill. We revisit these public policies in Chapter 4 to see, in detail, how much they cost the province and the extent to which they encouraged investment. Qubec also undertook a series of tactical initiatives to encourage the growth of the pharmaceutical industry. It secured a major new federal laboratorythe Biotechnology Research Instituteto support emerging biotechnology companies. It helped create networking organizations such as Montral International, BioQubec, and Montral In-vivo. In addition the province was quick to provide supporting funds to match
13 The agreement essentially contained the so-called Dunkel Text negotiated at the international General Agreement on Tariffs and Trade. See: http://www.google.ca/search?q=dunkel+text+trips 14 B. Pazderka, Canadian Public Policy Vol. 25, pp29, 1999.
federal investments made through the Canada foundation for Innovation and Genome Canada. The foundation provides financial support for infrastructure in universities and research institutions. The combined efforts of Genome Canada and the provincial government led to the formation of Gnome Qubec which finances and oversees large-scale genomics and proteomics research projects. Over the entire period, Qubec captured 41% of the national investment in the pharmaceutical sector despite having only 24% of Canadas population. Ontario averaged 43% with 39% of the population. The compound annual growth rate of pharmaceutical investment in Qubec was a staggering 11.3% over the period, almost three times greater than the growth in the economy as a whole.
Source: Patented Medicines Prices Review Board 2.8 sustaned effort pays off Most regions target high-tech sectors as engines for economic growth. Biotechnology and pharmaceuticals are always on the agenda. Research in life sciences has undergone explosive growth in the last few decades due mainly to the advent of recombinant DNA technologies and extraordinary 9
advances in our understanding of the role of genomics. Communities simply want to lever the huge public research investments being made in these fields in their local universities and hospitals. Success in building biopharmaceutical industries has often been elusive. Of 51 centers in the US that targeted pharmaceutical growth only 9 succeeded to a substantial extent.15 San francisco and Boston were early adopters of biotechnology in the 1970s. San Diego, Seattle, and Rayleigh-Durham built on well-funded medical research establishments. Washington/Baltimore is the home of the federally funded National Institutes of Health that did much to pioneer gene mapping. Los Angeles hit a home-run by being home to the largest biotech firm in the USAmgen. However, New York and Philadelphia draw their strength from the presence of major pharmaceutical companies. Given the experience in the US, building a successful biopharmaceutical cluster has only about a 20% chance of success. Public policy makers, therefore, need to seize on every advantage to make a life sciences cluster work. Qubec wisely levered the presence of multinational pharmaceutical firms on its territory. Montral, like New York and Philadelphia, relied on these companies to anchor its biopharmaceutical development. Qubecs achievements were not simply built on a few initiatives going back to the mid-1980s. They reflect sustained commitment to the industry with support for building social networks, enhancing publicly funded research, strategic management of the provincial drug formulary, and good pharmaceutical reimbursement policies. These initiatives transcended political party interests and were protected by a dedicated public service. The sustained public policy commitment and the presence of multinational pharmaceutical firms as anchor tenants have been the keys to Qubecs success.
15 http://www.brookings.edu/~/media/files/rc/reports/2002/06labormarkets_ joseph%20cortright%20and%20heike%20mayer/biotech.pdf
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A BRIEf PORTRAIT Of QUBECS LIfE SCIENCES SECTOR
3.1 the lfe scences sector16 Qubecs life-sciences sector counts almost 400 businesses, 25,000 employees, and 13,000 researchers in publicly funded institutions. Specialties include neurology, oncology, cardiology, immunology, and genomics. 3.2 urban geography In many cities that aspire to build biopharmaceutical sectors, hospitals and universities are landlocked in the downtown core by expensive real estate. firms generally locate in suburban areas where commercial real estate is less expensive. Having good transportation access between downtown and the suburbs really matters if firms and publicly funded researchers are to collaborate effectively. The greater Montreal area is home to most of Qubecs biopharmaceutical industry. Its urban geography works fairly well except of course at the height of rush hours. Universities and hospitals are mainly located in the core of the city. Pharmaceutical firms are spread out along Highway 40, the main access route from the West and along Highways 13 and 15 which run north. The trip from pharmaceutical territory to the downtown core takes 15 to 20 minutes by car. Montral also has a very efficient public transportation system including an extensive and heavily-used metro. 3.3 pharmaceutcal and botechnology companes Some 30 international pharmaceutical firms have their Canadian head offices in Qubec. Major players in Qubec include: Abbott Laboratories, AstraZeneca, Boehringer Ingelheim, Bristol-Myers Squibb, GSK Bio, Johnson & Johnson, Merck frosst, Novartis, Pfizer, sanofi-aventis, Servier, and Wyeth. Essentially all conduct clinical research in Qubec.
16 Investissement Quebec Life Sciences - Qubec: A Dynamic and Profitable Business Environment
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A Brief Portrait of Qubecs Life Sciences Sector
Several multinational pharmaceutical companies conduct discovery research in the province. Collectively, they employ some 1,000 laboratory researchers. AstraZeneca, Boehringer Ingelheim Canada, GlaxoSmithKline (GSK Bio), and Merck frosst Canada are among the major players. Pharmaceutical manufacturing accounts for one-third of the industrys workforce (3,000 people) spread across 30 manufacturers (see Appendix 1 for details). Medium and small-sized firms in the pharmaceutical industry are generally referred to as biotechnology companies. In Qubec, their main focus is human health with 75 companies employing more than 2,100 people (see Appendix 1 for leading firms). 3.4 clncal research organzatons Montral ranks 15th out of 102 cities around the world as an ideal center for the conduct of clinical research. It ranks higher than all US locations and, in Canada, is only outranked by smaller centers such as Halifax (Nova Scotia) and Sherbrooke (Qubec).17 Clinical research services are offered by approximately 20 companies employing some 4,300 people. Opportunities for conducting clinical research abound. Qubec has 20 university-affiliated hospitals in 5 major urban centers and a large talent pool of medical specialists (see Appendix 1 for details). 3.5 publcly funded research organzatons Publicly funded research organizations are essential for the development of any biopharmaceutical cluster. Qubecs university system is a major contributor in terms of its fundamental research and as the vehicle for training the highly qualified personnel needed by industry. Qubec is also home to a number of highly specialized research institutions in human health. Biotechnology Research Institute (BRI) The BRI is Canadas largest R&D biotechnology center employing more than 800 people.18 It is one of five National Research Council (NRC)
17 Competitive AlternativesKPMGs Guide to International Business Location 2008. Pp 37. 18 http://www.irb-bri.cnrc-nrc.gc.ca
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Institutes dedicated to biotechnology. Established in 1987, the BRI is active in two sectors, health and the environment. In the health sector, projects range from drug discovery to bioprocess scale-up, and biopharmaceutical production for preclinical trials. Clinical Research Institute of Montral The Clinical Research Institute of Montral (CRIM) is a not-for-profit organization employing close to 450 staff members. The Institute focuses its research on the causes and mechanisms underlying disease. Thirty-seven units conduct research in areas such as medicinal chemistry, molecular biology, functional genomics, clinical research, biomedical engineering, and bioethics. Institute of Research in Immunology and Cancer (IRIC) IRIC was founded in 2002 by the University of Montral to focus on immunology and oncology.19 IRIC employs 500 people. It provides an integrated research approach by deploying 10 advanced technology platforms including proteomics, bioinformatics, imaging, and high throughput screening20. McGill University and Gnome Qubec Innovation Center The Center focuses on genetic diseases and is one of the three major genomics and proteomics facilities Gnome Qubec has formed with Qubecs universities.21 Currently, the Center operates five platforms: genotyping, sequencing, functional genomics, proteomics and pharmacogenomics. The Montral Heart Institute partners with the Center on pharmacogenomics. Their shared research goal is to partially personalise medications and treatments to match the genetic profiles of patients. A Brief Portrait of Qubecs Life Sciences Sector
19 http://www.iric.ca 20 High throughput screening is used to identify drug candidates from among thousands of chemical compounds. 21 http://www.genomequebec.com
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McGill University Cancer Center (MCC) The McGill Cancer Center is the largest oncology center in Canada.22 The main research goal of the MCC is to fast-track fundamental oncology research, to advance cancer drug discovery and to enhance early diagnosis. Molecular Endocrinology and Oncology Research Center The Center is located at the Center hospitalier universitaire Laval (CHUL) and employs approximately 30 people. In 2000-01, the Center received $50 million in funding for research. Its main research focus is on cancer. The CHUL has already developed a number of novel approaches for the treatment of prostate and breast cancer.23 Montral Heart Institute (MHI) The Montral Heart Institute is affiliated with the Universit de Montral and is one of the largest cardiology institutes in the world. MHI employs 1,400 people of whom 75 are researchers.24 Their efforts focus on cardiology and surgery, radiological and nuclear imaging, psychiatry, psychology, and biology. Montreal Neurological Institute (MNI) The Montreal Neurological Institute (MNI) is affiliated with McGill University and is comprised of 11 research units covering all aspects of neuroscience.25 Specialities include stroke, epilepsy and neurodegenerative disorders. Recently, the MNI was named a Center of Excellence in Commercialization and Research, and also received CDN $105 million from the Canadian federal government. MNI is one of the worlds top three centers for 3D structural and functional imaging of the brain.
22 23 24 25
http://cancercenter.mcgill.ca http://www.crchul.ulaval.ca http://www.icm-mhi.org http://www.mni.mcgill.ca
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3.6 publc research fundng The Canadian Institutes for Health Research comprise a federally funded granting council that supports university and hospital research in health sciences. Qubec-based researchers capture roughly 29% of CIHRs funds, CDN $191 million in the year 2005-2006. The provincial government also provides annual funding in the order of CDN $90 million for health research through fonds de la rcherche en sant du Qubec (fRSQ).26 Created in 1964, the fRSQ funds a wide variety of projects covering basic, clinical, epidemiological, public health, health services, and social science research. funds for publicly funded health research from other sources such as Genome Canada, the Canada foundation for Innovation27 and the Natural Sciences and Engineering Research Council28 bring the annual total to approximately CDN $400 million per year. 3.7 venture captal Venture capital investments in Qubec have rebounded in recent years after a major fall in 2003. In 2007, investments in all sectors reached CDN $648 million up 8% from the CDN $600 million invested in 2006. Qubecs share of all disbursements in Canada was 31% in 2007 and its share of companies financed was 41% with both parameters being well ahead of Qubecs share of population (25%). foreign investors contributed CDN $ 210 million of the total invested.29 Life-science companies received 40% of total funds. CDN $ 262 million was invested in 26 companies. Of these, 22 companies were directly involved in biopharmaceutical development and received CDN $222 million; 85% of the amount. Interestingly, the provincial pension fund, Caisse de depot et placement du Qubec has used its considerable financial power to help develop the venture capital sector. The Caisse originally had a venture capital subsidiarySofinovbut now favors a partnership approach. In the last
26 27 28 29
http://www.frsq.gouv.qc.ca http://www.innovation.ca/index.cfm http://www.nserc.gc.ca/index.htm http://www.newswire.ca/en/releases/archive/february2008/12/c9140.html
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few years, it has invested over CDN $260 million in local venture capital firms and in foreign firms that have set up shop in Qubec.30 3.8 examples of organzatons supportng the cluster Montral In-vivo A Brief Portrait of Qubecs Life Sciences Sector Montral In-vivo is the organization that represents the citys life sciences cluster. The cluster consists of 150 public research organizations and 480 private companies of which 80 are subsidiaries of multinational firms.31 Montral In-vivo is a highly influential organization on the Qubec scene. Its work focuses on seven themes: Research; Technology transfer; finance; Commercialization; Visibility; Economic and scientific impacts of the university-affiliated hospital network; and Human resources. Each theme has an associated working group of between approximately 5 and 15 members. The members are typically senior managers drawn from the biopharmaceutical industry, the financial sector, publicly-funded research organizations, government, and teaching hospitals. In total, approximately 80 members serve on the working groups representing diverse research, industrial, public policy, and financial interests. The scope of the membership, the personal influence of the individual members, and the focus on building have made Montral In-vivo highly successful in its efforts to grow the biopharmaceutical cluster in Qubec. Gnome Qubec founded in 2000, Gnome Qubec is one of the six Canadian genomics organizations created by Genome Canada, a nationwide Government
30 http://www.lacaisse.com/en/financement/entreprises/Pages/risque.aspx 31 http://www.montreal-invivo.com
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initiative to create a world-class genomics and proteomics network. Gnome Qubec is a private, non-profit organization that funds genomics and proteomics research. It is co-funded by Genome Canada and the Qubec government. By 2006, cumulative funding for genomics research in Qubec had reached CDN $266 million.32 Quebec Biotechnology Innovation Center (QBIC) founded in 1995, QBIC is a non-profit private biotechnology business incubator and is recognised as a leader in business mentoring for the biotech sector. Located in Laval, just north of Montral, its main goal is to provide physical space and business advice to start-ups. The organization supports businesses from pre-incubation to post-incubation with the help of its public and private partners. BIOQubec BIOQubec is a life-science industry association that represents more than 215 companies and R&D centers in Quebec.33 Its members employ more than 25,000 people in Qubec alone and it conducts research in animal and human health, agriculture and forestry, and the environment. BIOQubec aims to develop the industry by promoting access to capital, advances in public policy, training and international awareness. Pharmabio Dveloppement Pharmabio Dveloppement is a Human Resources Sector Committee for Qubecs biopharmaceutical industry. It is a non-profit organization with a membership made up of companies, individuals, associations, and government bodies. Its aim is to develop the talent pool by identifying the sectors needs and by creating programs. 3.9 a healthy cluster Qubec has developed an impressive life-sciences cluster. All of the key components are in place; firms of all sizes, excellent publicly-funded
32 http://www.genomequebec.com 33 http://www.bioquebec.com
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research institutions, platforms for advanced research, venture capital, incubation centers, organizations that promote the sector and encourage networking, university affiliated hospitals and research centers, and funds for public research. The provincial government has been heavily involved in encouraging and developing all aspects of the cluster supporting, encouraging and, in some cases, inventing some of the organizations described above. It has aggressively pursued every opportunity for growth and the results speak for themselves.
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ECONOMIC BENEfITS34
4.1 nvestments n r&d Large pharmaceutical firms in Qubec have increased their investments in R&D at a compound annual growth rate (CAGR) of 11.3% per year for almost 20 years. Their R&D spending reached almost CAD $ 500 million in 2006. The pace of investment outstripped growth in the economy (CAGR = 4.0% per year) by almost a factor of three. The magnitude of the investment and its sustained growth for almost two decades are remarkable testaments to the partnership between government and industry in the province.
Source: Deloitte survey of Rx&D members

34 A large proportion of the information presented in this section was collected and calculated by SECOR in a mandate commissioned by Rx&D, the association representing Canadas Research-based pharmaceutical Companies. We thank Rx&D for allowing us to present key components of the data in this book.
19
Major pharmaceutical companies35 generate 24% of their revenues through sales in Qubec. This figure is equal to the percentage of Canadians who live in Qubec. Yet the major firms carry out 46% of their overall research in Qubec and 66% of their discovery research. Major firms account for 90% of all industrial pharmaceutical research in the province.
Economic Benefits
Source: Deloitte survey of Rx&D members 4.2 r&d n qubec compared to sales One of the crucial metrics applied to the investments of major pharmaceutical firms is the ratio of R&D to sales made in any jurisdiction. In 2006, for every CAD $100 in sales, large pharmaceutical firms invested CAD $16.2 in Qubec as compared with CAD $8.3 in Canada as a whole, CAD $8.1 in Ontario and CAD $2.8 in British Columbia (BC), an important hub for biotechnology firms.
35 The members of industry association Rx&D.
20
Economic Benefits
Source: Deloitte survey of Rx&D members Qubec outstrips Canada as a whole and Ontario by a factor of two. Canadian inter-provincial comparisons highlight Qubecs success in attracting investment, but international comparisons are more compelling.36
36 https://www.cia.gov/library/publications/the-world-factbook/print/sz.html
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Economic Benefits
Sources: Deloitte survey of Rx&D members; and PMPRB Annual Report, 2006citing data for 2004 Among western industrialized nations, Qubec scores well. With the exception of Italy and, Canada, all of the countries listed have headquarters of large multinational pharmaceutical firms within their borders. Switzerland with its population of only 7.6 million37 has two of them: Novartis and HoffmannLa Roche. Qubec is doing well as the above data for 2004 show. However, its position has actually weakened over time. In 2000, it was fourth ranked and was ahead of the US with a ratio of R&D to sales of 20.3%. After many years of sustained growth, R&D expenditures in Qubec have recently been flat (see section 4.1) while sales have continued to move forward.
37 https://www.cia.gov/library/publications/the-world-factbook/print/sz.html
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Economic Benefits
Source: Deloitte survey of Rx&D members R&D is important but so too is investment in plant, equipment and the land to put them on. In 2006, the book value of these investments in Qubec was CAD $831 million for the members of industry association Rx&D. This was 59% of the total invested in Canada as a whole. 4.3 employment Job creation enriches communities economically and socially. Qubec captured 45% of the industrys jobs in Canada even though it has only 24% of Canadas population. In 2006, when the number was last tallied, Qubecs brand name pharmaceutical industry employed 9,200 people.
23
Economic Benefits
Source: Deloitte survey of Rx&D members The major pharmaceutical firms also paid their employees more, on average, than other important sectors in Qubecs economy.
24
Economic Benefits
Sources: Statistics Canada and Deloitte survey of Rx&D members Information on the number of jobs and the type of jobs in the pharmaceutical sectormanufacturing, research, sales etccan be plugged into the economic model of the economy. The model outputs the additional jobs created among suppliers to the industry. The pharmaceutical industry delivers a high leverage since it creates 1.86 additional jobs in the economy for every person directly employed. In Qubec this amounts to a little over 17,000 jobs. When combined with the 9,200 direct employees, the sector generated the equivalent of 26,200 full time jobs. These are generally referred to as fTEsfull Time Equivalents. The model also shows where these jobs are created in the economy.
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Economic Benefits
Source: Modeling by Statistics Canada based on data supplied by SECOR The estimated 3,774 professional services jobs or full Time Equivalents created by the pharmaceutical industry can also be broken down into type of service. Not surprisingly, information technology coupled with engineering account for the highest number of jobs created. Details of Professional Services Information technology and engineering financial services Legal services Publicity and information services Security services Other professional services Full Time Equivalents 2006 1,054 865 479 228 194 954
The numbers for job creation by the pharmaceutical industry exclude employment created by personal spending. The people in the 26,200 full Time Equivalent jobs created by the pharmaceutical sector buy homes, cars, 26
food, clothes, go to restaurants, the corner store, the movies, and so on. These activities generate a further 5,200 jobs in the economy. The grand total of all the employment created by the innovative pharmaceutical industry in 2006 was 31,400 when all of these other impacts are included. 4.4 fnancal mpact on quebecs economy The innovative pharmaceutical companies in Qubec create wealth or added value in the economy. Salaries as well as company profits and other revenues generate this extra economic activity. The total can be estimated through economic modeling. for Qubec, the value added to the economy by the pharmaceutical industry was CAD $2.1 billion in 2006almost the same as the sales made by the same pharmaceutical companies in Qubec. Of the sales of brand name pharmaceutical products, public insurance covered CAD $1.11 billion while private insurance paid for CAD $1.18 billion. Economic Benefits
Source : SECORs analysis The added value to the economy comes from two sources: the direct impacts generated by the expenditures of innovative pharmaceutical firms and the indirect impacts flowing from the goods and services bought from suppliers. 27
Economic Impact of Operating and Capital Expenditures Made By The Innovative Pharmaceutical Industry in 2006 (CAD $ millions) Type of impact Economic Benefits Added value - Salaries (excluding benefits) - Net profits of individual firms - Other revenues (including benefits) Full time equivalent positions involved Direct effect 1,009 588 11 410 9,164 Indirect effect 1,103 585 65 454 17,044 Total 2,112 1173 76 864 26,208
Source: Simulations by the Statistics Institute of Qubec, data provided by SECOR 4.5 taxes pad38 With all of this extra economic activity, governments reap benefits through taxation. In Canada, taxes are levied both federally and provincially. If we look only at the taxes captured by Qubec in 2006, the total was CAD $343 million and was made up of CAD $170 million from direct activities of the major pharmaceutical firms and CAD $173 million from indirect sources. Annual Impact of the Government of Qubecs Revenues 2006 (CAD$ millions) Category Government of Qubecs Revenues Taxes on salaries and wages Sales taxes Social benefits e.g. pension Corporate taxes Direct impacts 170 64 72 34 Indirect impacts 173 54 17 102 NA Total impacts 343 118 17 174 34
Source: Rx&D. We thank Rx&D for generously sharing this information

38 Calculated by the Statistics Institute of Qubec using data provided by SECOR
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from the governments perspective, it paid out $1.14 billion to reimburse drugs used by patients in its drug benefit plan but recovered 31% (CAD $343 million) in taxation. In addition, patients contributed to the drug plan through premiums and co-payments, significantly reducing the governments outlay (see Section 4.4). 4.6 summary of economc mpacts By providing a public policy environment that encouraged the brand name pharmaceutical industry, Qubec with 24% of Canadas population: Captured industrial R&D investments amounting to CAD $500 million in 2006 equivalent to 46% of total R&D investments made in Canada and 66% of those made by firms in fundamental research; Purchased 24% of all products sold by the industrya percentage identical to Qubecs share of Canadas population; Achieved a ratio of 16% of R&D to sales, similar to those of countries that have one or more major pharmaceutical firms headquartered within their borders; Was home to 9,200 (45%) of the industrys employees whose average salary amounted to $86,000 per yearsubstantially higher than most other sectors of importance to the provincial economy; Benefited from the creation of a further 17,000 full Time Equivalent jobs among the firms that supply the brand name pharmaceutical industry; Captured an additional 5,200 jobs due to the personal expenditures on goods and services made by the direct employees of the pharmaceutical firms and the people in supplier companies who worked with them; Derived CAD 2.1 billion of wealth creation from the pharmaceutical sectoran amount almost equal to all the purchases of brand name pharmaceutical products in the province; Spent CAD $1.14 billion on pharmaceutical products for citizens in the provincial drug plan and collected 31% CAD $343 million in taxes derived from the pharmaceutical industry; and, most importantly; Provided Qubecers with access to many leading-edge pharmaceutical products.
Economic Benefits
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Qubec has derived substantial benefit by encouraging the brand name pharmaceutical industry. By having major multinational firms on its territory, it has secured a number of anchor tenants for its pharmaceutical clusterfirms that can help and partner with Qubecs emerging biotech companies.
Economic Benefits
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QUBECS SUSTAINED PRO-PHARMA POLICIES
5.1 addtonal ntatves In the 1980s Qubec strongly encouraged and supported the federal governments efforts to improve the protection of intellectual property rights for pharmaceutical products. The federal government struck a deal with the pharmaceutical industry and granted improved intellectual property rights in 1987 in return for a commitment to increase R&D expenditures to 10% of sales. At the same time the federal government set up a quasi-judicial body, the Patented Medicines Prices Review Board, to make sure that the prices being charged by firms were not excessive. In 1992, the federal government removed the last vestiges of compulsory licensing of intellectual property rights in the context of the North American free Trade Agreement. While these changes were going on, Qubec set itself apart from other provinces by providing reasonable corporate tax rates, and generous tax credits for research and development. It later added the fifteen Year Rule. The rule allowed doctors to prescribe and patients to request brandname products for a period of 15 years after the products were listed on the provincial formulary for reimbursement. The rule applied even if generic versions of the drugs were available at lower cost. . We will investigate these initiatives to see what they cost the province and whether or not they have had a material impact on pharmaceutical investment. 5.2 corporate tax rates Qubec captures relatively little advantage through its corporate tax rates. Over time, taxes on corporate earnings have been steadily decreasing in OECD countries. In 1993 average rates were 38% but by 2007 had fallen to 27.8%. Ireland, for example, aggressively reduced its rate to 12.5% to encourage corporate investment. At 32.0%, Qubecs rate is slightly lower than the average for Canada and is in the middle of the OECD pack.39
39 We thank Hugues Lachance of KPMG for generously sharing his data on taxation and R&D tax credits and for allowing us to reproduce key components of it.
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Qubecs Sustained Pro-Pharma Policies
Source: KPMG Social benefits paid as a percentage of salary also represent a significant cost of doing business. Canada provides a relatively low cost environment while france, Italy, Spain, and Germany have much higher charges. The US seems to have relatively low costs but healthcare insurance for employees is a major cost that is paid directly to insurers and not to government. Ireland emerges as a low cost environment from the perspectives of both corporate tax and social benefits and has enjoyed sustained economic growth.40
40 for an assessment of Irelands success see: http://slate.msn.com/id/2111312/
32
Source: OCDE, KPMG Unlike Ireland, Qubec has not captured competitive advantage by having very low corporate tax rates or low costs to employers of social benefits. Indeed, for small firms such as emerging biotechnology companies with profits of less than CAD $400,000 per year, Qubec has the highest rate of tax in Canada at 19.5%, The Canadian average for small companies is 16.2%. Corporate tax rates for the principal biopharmaceutical clusters in North America are higher than those in Montral and yet they all seem to flourish. We would have to conclude that the decision on where to place pharmaceutical investment is fairly insensitive to direct taxation and benefits paid on salaries.
33
Source : SECOR, Investissement Qubec 5.3 r&d tax credts Canada provides tax credits for scientific research and development at both federal and provincial levels. R&D is, of course, a business expense just like general operating costs, interest charges, and depreciation. firms deduct these expenses from revenue in order to arrive at a taxable profit. Tax credits reduce taxes paid by firms involved in R&D. Canada, started tax credits in 1983 with a federal rate of 10%, meaning that firms could deduct 10% of eligible R&D expenses from corporate income tax due. The rate was increased to 20% in 1987. This was around the time when Canada significantly improved its intellectual property rights in return for greater R&D investments by the pharmaceutical industry. Qubec provided an additional credit of 17.5% on salaries paid to researchers by large corporations. To capture the R&D tax credit, large corporations have to make a profit and to have taxes due on that profit. They can then deduct the R&D credit from the taxes they owe. This is not the case for small Canadian controlled private corporations where tax credits are even more generous. The small firms receive the tax credit whether or not they make a profit. If they have 34
no taxes to be paid to the federal and provincial governments, they still receive checks from both levels of government to compensate them for a proportion of their R&D spending. The federal proportion is the same across the country but the provincial contributions vary from province to province. The Canadian federal government provides an R&D tax credit of 35% to small Canadian-controlled corporations. Again, Qubec follows suit with a credit of 37.5% on the salaries of researchers. Credits also apply but at different rates when firms contract-out R&D. A small start-up in biotech in Qubec making no profit that spends $600,000 in a year on R&D with most of the cost going to salaries, would expect to receive checks from the two governments totaling around $400,000. Government actually pays the firm back more than half of the money it spends on R&D even if it has no profit and has no corporate taxes to pay. Qubec is the most generous province in terms of R&D tax credits. The two governments are not quite as generous with large firms. federal credits, for example, have to be deducted from taxes due. Suppose a Qubec pharmaceutical firm has revenues of $100 million a year and makes $16 million of profit. The firm spends $17 million on R&D of which $9 million goes to salaries. Here is how the numbers work out. The corporation pays only $900,000 of tax on $16 million of profit, an effective tax rate of 5.6%. This is a huge tax advantage. Amounts (millions) Revenue Profit Taxes due @ tax rate of 32% Research expenses federal tax credit @ 20% rate Research salaries Provincial tax credit @ 17.5% rate Tax payable on credits Tax payable after credits $9.00 -$1.58 $1.62 $0.90 $17.00 -$4.26 $100.00 $16.00 $5.12 Taxes & Credits (millions)
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Clearly, any firm that spends large amounts on research in Qubec can easily find itself in a position where it has very little tax to pay.41 Other countries also provide tax credits. for example, Ireland and the US have tax credits that can run as high as 20%. No other country is as generous as Canada and, within Canada no province is as generous as Qubec. Qubec introduced generous tax credits at about the same time as improvements to intellectual property rights came into play. Economic analysis cannot untangle the impacts of the two approaches. However, one fact is undeniable; investments in R&D by multinational pharmaceutical firms quickly increased after these measures were introduced. Investments in Qubec quintupled in the period 1988 to 2006 representing a compound annual growth rate (CAGR) of 11.3%. 5.4 the ffteen year rule When Canada upgraded intellectual property rights for pharmaceutical firms in the late 1980s and early 1990s, it provided full protection from generic competition for twenty years after the patent on a new drug had been issued. This seems like a very long period but, in reality, it is not. Development of a drug from the point of discovery in the laboratory to the time when it receives market approval can take 10 to 12 years and costs, on average, USD 800 to 900 million.42 firms have to recover the costs invested in R&D and make a profit during the 8 to 10 years of patent protection that remain. Once patents expire, generic drug companies typically enter the market with similar, lower-cost, products. Government regulators consume two to three years of patent lifetime while they assess drugs to see if they should be released onto the market. They carefully check data gathered by firms on the clinical safety and efficacy of drugs as well as the quality of manufacturing. Many OECD countries provide up to five years of additional patent to compensate firms for this loss. The compensation is called Patent Term Restoration.43 In Canada, the protection of intellectual property is a federal jurisdiction. The federal government does not provide Patent Term Restoration. To encourage the pharmaceutical industry on its turf, Qubec created the
41 Credits can be carried forward to years when tax needs to be paid up to a limit of 20 years. 42 for a review of the literature see: Pharmaceutical Research and Its Value to Canadians by David Griller, 2006. 43 http://content.healthaffairs.org/cgi/reprint/1/2/6.pdf
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fifteen Year Rule which goes some way towards providing the protection afforded by Patent Term Restoration.44 The rule allows the patented drug to be reimbursed for fifteen years after it is listed on the provincial drug formulary even if a less expensive generic version becomes available.45 The patient who is covered by provincial drug insurance and his or her doctor can ask for the brand name product to be dispensed. The fifteen Year Rule sets Qubec apart from other provinces. It effectively provides intellectual property rights approaching OECD standards when other provinces and the federal government do not. This is a clear signal that Qubec encourages the brand name pharmaceutical sector. Of course the key question is, what does it cost the province? Brogan Inc. calculated the cost of the fifteen Year Rule for the period June 2002 to July 2005 to be CAD $31 million per year on average. To do the calculation, Brogan looked at the impact of switching prescriptions from brand to generic drugs once patents had expired.46 The $31 million per year is a relatively small amount compared, for example, to the tax revenues of CAD $343 million collected in 2006 by Qubec from the activities of the pharmaceutical sector. It is trivial compared to the CAD $2.1 billion of value added to Qubecs economy by the brand name pharmaceutical industry. More recently, the impact of abolishing the rule was calculated for the provincial economy by considering factors such as reduced investment in R&D and capital assets.47 The pharmaceutical sector has consistently invested more heavily in capital assets and R&D in Qubec than in the rest of Canada. The calculation assumed that abolition of the rule would slow the pace of these investments to the levels seen in the rest of the country. If this were to occur the economic impacts would be quite high based on data for 2004: A reduction of Qubecs gross domestic product (GDP) of CDN $340 million i.e. -0.14%;
44 The rule is also referred to as BAP 15 meaning that the province buys drugs at Best Available (Canadian) Price and also applies the 15 year rule on prescribing brand name products. 45 A generic drug contains the same active ingredient as its brand name precursors but may have a different formulation and method of manufacture. As a consequence, its bioequivalence i.e. the dose distributed in the patients body may not be identical to that of the brand name drug. for a discussion of the potential consequences see, for example: http://www.americanheart.org/presenter.jhtml?identifier=3015266. 46 Analysis by Brogan Inc. carried out for Merck frosst Canada Ltd. and cited in http://www.finances.gouv.qc.ca/documents/feuille/fr/2005_002.pdf 47 http://www.finances.gouv.qc.ca/documents/feuille/fr/2005_002.pdf
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A reduction of 0.66% in GDP produced by the manufacturing sector; An increase in the rate of unemployment of 0.38%; A reduction in household income of 0.11%; and A reduction in the value of exports to the rest of Canada (0.56%) and to the rest of the world (0.21%) accompanied by corresponding reductions in imports of 0.03% and 0.13%. 5.5 what f qubec had not taken a pro-pharma stance? Qubec took several measures to encourage pharmaceutical investment on its territory. It: Strongly encouraged the Canadian federal government to enhance intellectual property rights and to end compulsory licensing; Provided generous tax credits to encourage research and development; and Introduced the fifteen Year Rule to provide extra protection to patent holders. These measures came into play in the period 1988 to 1994. Assessing their individual impacts on the growth of the pharmaceutical industry is essentially impossible. Collectively, they seem to have had a beneficial impact on capital investments in the province by the pharmaceutical industry. These grew at an annual rate of 9.1% between 1994 and 2003 in Qubec as compared with 6.8% in the rest of Canada. The same cannot be said for R&D expenditures. Qubecs compound annual growth rate for R&D of 11.3% was essentially identical to the rate of 11.9% for the rest of Canada.48 While Qubecs growth in R&D was similar to the rest of the country, its share (41%) has been out of proportion to its population (24%)49 and has remained essentially constant over the best part of two decades.
48 SECORs calculation based on PMPRB data, 49 Data from Statistics Canada suggest that Qubecs share in the late 1970s approached 60% but declined to around 35% in the mid-1980s. However, where comparison is possible (1988 to 1995), the Statistics Canada results do not fit well with those reported by the PMPRB which we take to be a better source of data on multinational pharmaceutical company expenditures. See: B. Pazderka, Canadian Public Policy, Vol. 25, pp 29.
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Source: PMPRB annual reports The constancy of Qubecs share of R&D in Canada is somewhat surprising since pharmaceutical investment grew very rapidly over almost the entire period. The rate of growth was much greater than in other OECD countries and also exceeded that in other Canadian industries. One might have thought that firms would have used the growth period to allocate new R&D spending to provinces other than Qubec and especially to Ontario which has an important concentration of multinational pharmaceutical companies. By and large, they did not. The ratio of R&D to sales in Qubec was at 16.2% in 2006 versus 8.3% for Canada as a whole and 8.1% for Ontario. Qubecs share represents 46.1% of total R&D investment by brand name firms.50 Qubec was also home to 45% of the employees of brand name pharmaceutical companies.
50 The data in the figure refer to the R&D expenditures of all patent holders not just those of the brand name companies.
39
Source: Deloitte survey of Rx&D members 5.6 lessons from qubecs experence What might have happened had Qubec not developed pro-pharma public policies that were sustained over two decades and changing governments? Which policies did Qubec really need to implement to retain its share of pharmaceutical investments in a period when these rose very rapidly? The answers to these questions cannot be known precisely. However, some important conclusions can be drawn from Qubecs experience. first, if a region wants to develop its pharmaceutical industry but is located in a country with poor intellectual property rights it will have an extremely difficult task. It must do as Qubec did and lobby effectively for internationally competitive rights to be implemented at the national level. The implementation of full rights can be coupled to a quid pro quo from industry to increase its investments. Second, local actions can work to protect a regions share of investments when, nationally, these rise rapidly. With the fifteen Year Rule Qubec effectively provided a measure of Patent Term Restoration that the rest of Canada does not have. In addition, Qubec implemented a favorable tax credit system to encourage research. 40
How much further can Qubec go? As we showed, Qubecs share of R&D as a proportion of sales (16.2%) is similar to those of countries that have had major pharmaceutical industries over long periods. Canada overall is a laggard at 8.3%. However, to some extent Qubecs fortunes are tied to Canadas. Provinces provide drug insurance for about half the population and most apply cost-containment approaches and restrictive formularies. This certainly weakens Canadas attractiveness as an investment location with the spill-over effect of limiting Qubecs growth potential.
41
42
QUBECS APPROACH TO PHARMACEUTICAL INSURANCE
6.1 nsurance for pharmaceutcal products n canada Healthcare in Canada is delivered provincially. No national standards guarantee Canadians access to pharmaceutical products or to prescription drug insurance. The result is a patchwork quilt of coverage schemes. Most provinces provide coverage for seniors, people with disabilities, and those requiring social assistance.51 Some provide coverage for the self-employed. These groups constitute about half of the population.52 Typically, the formulary or list of drugs reimbursed by provinces tends to be limited. The approach is unlike Medicare Part D in the US where pharmaceutical insurance for groups such as seniors and those with disabilities is government subsidised but privately delivered. In the US, patients have a wide range of choices in selecting plans and formularies that suit them best. However, co-payments made by the beneficiaries tend to be higher than those in Canadian plans.53 Canadian employers often provide pharmaceutical coverage for their employees and most drugs are available under private insurance plans. Private plans do not provide true insurance schemes since very little risk is pooled. A firm typically pays premiums based on the cost of drugs used by its employees in the preceding year, an allowance for price increases, and a service charge to cover the costs of administration and the profit of the insurer. Provinces in Western Canada and in Qubec have insurance plans that cover the self-employed. OntarioCanadas most populous provinceand provinces in Eastern Canada exclude the self-employed. However, most
51 for details of provincial insurance plans and the drugs they cover see: http://www.drugcoverage.ca/default.asp 52 The federal government also provides coverage for certain groups including aboriginal peoples, the armed forces, the Royal Canadian Mounted Police and veterans. In aggregate, these groups represent about 2% of population. 53 http://www.medicare.gov/MPDPf/Public/Include/DataSection/Questions/MPDPfIntro.asp?versi on=default&browser=firefox%7C2%7CWinxP&language=English&defaultstatus=0&pagelist=Ho me&ViewType=Public&PDPYear=2008&MAPDYear=2008&MPDPf%5fMPPf%5fIntegrate=N
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Qubecs Approach To Pharmaceutical Insurance
provinces now provide catastrophic drug coverage which protects all citizens including the self-employed in situations where drug costs exceed 3% to 5% of family income.54 To add to the complexities of the Canadian scene, drugs administered in hospitals are paid for out of hospital budgets but are subject to provincial formulary guidelines. Hospital drugs would include, for example, those for oncology even if administration is handled on an outpatient basis. 6.2 lack of actuaral soundness n drug nsurance Provincial insurance plans differ substantially in the ways in which they are structured.55 In general, however, they provide a safety-net for populations at risk such as seniors56 and those unable to work. As a consequence, most provincial plans are not actuarially sound by design since they cover people with limited ability to pay insurance premiums. Tax revenues pay for the shortfalls in provincial plans between the cost of providing drugs and the revenues from insurance premiums and co-payments. This mechanism partially transfers the financial burden to the working population which is, on the whole, younger, healthier, and in less need of prescription drugs. A national approach to pharmaceutical insurance would be consistent with Canadas philosophy of providing universal access to healthcare. However, bringing provinces together in a national scheme would be difficult. Some provinces provide broad formularies and demand high copayments and premiums while others take the reverse approach.57 Citizens with private insurance would surely object to having the more limited formularies provided by public insurance. In many respects, insurance through health savings plans might be better. People would contribute premiums when they are young and healthy so as to provide funds for periods when they are less well. This would, however, be a major departure from the status quo.58
54 Recommendations for a federal/Provincial/Territorial Approach to Catastrophic Drug Coverage , Rx&D 2006. http://longwoods.com/product.php?productid=17236&cat=369&page=1 [en anglais seulement] 55 http://longwoods.com/product.php?productid=17236&cat=369&page=1 56 Skinner has argued that providing subsidized drug coverage for seniors is inappropriate since they often have the ability to pay. He suggests that subsidies be reserved for those in genuine need. http://www.fraserinstitute.org/commerce.web/product_files/UniversalDrugBenefitsforSeniors.pdf 57 Brian ferguson has eloquently discussed this issue: http://www.hc-sc.gc. ca/english/pdf/romanow/pdfs/Dialogue_5_Pharmacare_E.pdf 58 See for example: http://www.ustreas.gov/offices/public-affairs/hsa/
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6.3 qubecs approach to pharmaceutcal nsurance59 In this complex situation Qubec adopted a compromise position. It decided to continue with a public/private mix of insurance as opposed to all public or all private plans. It reformed coverage to ensure universal access to a good drug formulary irrespective of income. All political parties subscribed to this approach as a principle of social justice. Qubec launched a comprehensive prescription drug insurance program in 1997 and replaced a mix of earlier programs designed to support the poor and very sick. By law, every Qubecer must have either private drug insurance or that provided by the public health agency, the Rgie de lassurance maladie du Qubec (RAMQ). By 2006, Qubecs public plan covered 3.2 million citizens. Private plans covered the remaining 4.4 million. The law requires that all private plans provide, at a minimum, access to the 5000 prescription drugs listed on the provincial formulary. It also caps a beneficiarys out-of-pocket expenses in premiums and co-payments at CDN $881 per year. In addition, co-payments must not exceed 29% of drug costs. All other payments have to be covered by the beneficiarys plan. Citizens covered by the public plan pay premiums in the range CDN $0 to CDN $538 per adult depending on income. The premiums are collected through the provincial income tax system. Drug costs for the public plan almost tripled in the period 1997 to 2005 reaching CDN $2.4 billion. By 2006, only 27% of the RAMQs revenues were generated from premium payments. The balance came from general taxation. The RAMQs per capita drug expenditure was the highest of all provinces. In 2005, drug costs amounted to 20% of medical expenditures versus 17.5% in the rest of Canada. In addition, 61% of purchases were for brand-name drugs versus 51% in the remainder of the country. The weighting towards brand-name products was encouraged by the fifteen Year Rule and by the fact that Qubec listed many more products on the formulary and did so in a more timely way than other provinces. To partially counterbalance the impacts of this approach, Qubec froze drug prices during the period 1994 to 2007. Overall, Qubec encouraged the use of brand-name products in an effort to promote its pharmaceutical industry. When it launched its revised drug plan in 1997, Qubec effectively increased user fees for many seniors and those receiving social assistance. Subsequent studies showed that the approach decreased drug consumption
59 http://www3.interscience.wiley.com/journal/118541267/abstract?CRETRY=1&SRETRY=0.x
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by the poor and especially the mentally ill. It concurrently increased doctor and emergency room visits as well as costly hospitalization. In 1999, the scheme was reformed. It reduced to zero all contributions for those unfit to work and, in 2007 it further exempted 280,000 citizens with low income from making co-payments. Approximately one million Qubecers now have access to drugs without payment. Qubecs Approach To Pharmaceutical Insurance 6.4 qubecs 2007 polcy on medcatons60 In 2007, Qubec revised its policy on medications after extensive public consultations with stakeholders. The policy led to a detailed action-plan based on four key directions: Access to medications; The establishment of a fair and reasonable price for medications; Optimal use of medications; and Sustaining a dynamic biopharmaceutical industry in Qubec.
Qubec improved access by exempting low-income citizens from copayments as mentioned above, and by streamlining administrative procedures for listing drugs on the provincial formulary. The province also launched initiatives to deal with reimbursement of drugs for rare diseases and to address the current shortage of pharmacists. The government lifted a price-freeze that had been imposed in 1994. It also required that firms charge the provincial insurance plan the lowest prices available in Canada and that any request for price increases be accompanied by proposals to attenuate their financial impact. The government took steps to impose ceiling prices on generic drugs and on the distribution charges captured by wholesalers. The 2007 policy proposed a number of initiatives for the optimal use of medications including efforts to sensitize patients to the best use of pharmaceutical products. firms were invited to join in this effort and, if necessary, to share the financial risks associated with the use of innovative medications. The biopharmaceutical industry benefited from the new policy. In addition to the relaxation in the price-freeze, and speedier formulary listing
60 http://msssa4.msss.gouv.qc.ca/fr/document/publication. nsf/fb143c75e0c27b69852566aa0064b01c/f1331768c96d1b918525726f006c7e5f?OpenDocument
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procedures, the fifteen Year Rule was maintained. Government also set up a permanent forum for the exchange of ideas that links the Ministry of Health and Social Services, the Ministry of Economic Development, Innovation and Export Trade, and the biopharmaceutical industry. These measures struck a balance between the interests of the key stakeholders and reflected the merits of having an extensive consultation process. 6.5 nterprovncal comparsons Interprovincial comparisons of expenditure on prescription drugs reflect parameters such as age distribution. If we look at Canadas largest provinces, Qubecs per capita expenditure on prescription drugs is the highest: CDN $746 (Qubec), CDN $732 (Ontario), CDN $572 (Alberta) and $530 (British Columbia).61 However, Qubecs total per capita expenditure on healthcare is the lowest: CDN $3,878 (Qubec), CDN $4,595 (Ontario), CDN $4,820 (Alberta) and $4,317 (British Columbia). While Qubec spends more on prescription drugs per capita than other large provinces, it spends far less on total healthcare costs. The obvious conclusion is that spending more on prescription drugs saves healthcare expense at the end of the day. This is probably an over simplification since many factors influence total healthcare expenditure. In particular, salaries for healthcare professionals in Qubec are lower than those in the rest of the country. However, good evidence from multiple sources, including Qubecs experience, shows that overall savings in healthcare can be made by: Aggressive intervention in primary care with pharmaceutical products; and by Ensuring that low-income patients have access to prescription medications. Analyses by Lichtenberg as well as Cremieux and his collegues, show that increased spending on new drugs is greatly offset by savings in the healthcare system as a whole.62 In fact, the best cost-saving approaches
61 Data for 2007: http://secure.cihi.ca/cihiweb/dispPage.jsp?cw_page=AR_80_E&cw_topic=80 62 http://www.nber.org/papers/w8996 and Cremeieux, Pierre-Yves; Ouellette, Pierre; and Petit, Patrick, Do Drugs Reduce Utilisation of Other Healthcare Resources? Pharmacoeconomics. 25(3):209-221, 2007.
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identify patients at risk for serious disease and treat them aggressively in the primary care environment using drugs as appropriate. The approach reduces the progression to serious illness and to costly hospitalization. Pitney Bowes, the office equipment manufacturer, has been a leader in this area on behalf of its employees.63 As well as allowing them access to a full formulary it reduced co-payments for prescription drugs. for example, since cutting co-pays, Pitney Bowes now spends 19% less on each employee with asthma compared to six years ago. Pitney Bowes achieved similar success in the management of diabetes. 6.6 concluson All Qubecers by law have access to a good formulary of prescription drugs irrespective of income. Qubecers have access to drugs through either private or public schemes. The public scheme provides a safety net for citizens less able to cope with drug expenditures. Its revenues do not cover the full cost of drugs and general taxation pays for the shortfall. Qubecs spends more money per capita on prescription drugs than do other Canadian provinces because it: Has an extensive drug formulary for citizens with provincial insurance; Lists innovative prescription drugs more rapidly than other provinces; and Applies the fifteen Year Rule. However, Qubecs per capita total health expenditures are lower than those of other provinces. Qubecs experience and indeed that of other payers suggest that intelligent spending on prescription drugs may lead to reductions in overall healthcare costs. Qubec has shown that public policies that encourage a regional pharmaceutical industry by reimbursing innovative drugs and control healthcare costs, are not in conflict. If anything, the evidence suggests that they are mutually supportive.
63 New Tack on Copays: Cutting Them Wall Street Journal, 8 May 2007
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COULD CANADA DO MORE TO BUILD THE SECTOR?
7.1 progress snce the nneteen-eghtes Pharmaceutical investment in Canada grew rapidly starting in the late 1980s and early 1990s triggered by national policies to enhance intellectual property rights. Qubec was a strong advocate of these policies. It added to them measures aimed at building the provincial pharmaceutical industry. Qubec was successful. It retained a disproportionately high share of pharmaceutical investments during the period of rapid investment growth and captured important economic benefits as a result. Major multinational companies respond to public policy initiatives when they make investment decisions. Major firms may be attracted to cities or regions that have excellent research institutions or top hospitals for clinical studies. However, pharmaceutical firms have to sell drugs and market access is a key determinant in their investment decisions. In Canada, a blend of national and regional policies impact market access. We may, therefore, ask if Canada should do more to build the pharmaceutical sector at the national level. We may also ask if any lessons could be learned from Qubecs success that could be generalized to other provinces. 7.2 why nnovaton n the pharmaceutcal ndustry s unusual The 1990s saw explosive growth in innovation in two important fields: pharmaceuticals and ICT (information and communications technologies). The relationships between governments, consumers, and firms in these sectors are strikingly different. During the 1990s, the cost of computing technology declined rapidly while computing power rose dramatically.64 fiber-optic technologies transformed telecommunications and made the Internet possible. Many of us now have a laptop, wire-line phone, cell phone, broadband Internet access, and digital television. A consumer can easily spend two or three thousand dollars a year on these technologies. Government intervention
64 http://www.intel.com/technology/mooreslaw/index.htm
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Could Canada Do More To Build The Sector?
in ICT has been light and, in the main, has worked to increase consumer access to technology, especially to the Internet. While telecommunications technologies advanced rapidly so did those in molecular biology. Based on new science, pharmaceutical firms delivered miracle drugs to manage heart disease, diabetes, asthma, HIV/AIDS, anxiety, and depression. The treatment of chronic disease rapidly improved and, in many places, entire hospitals were closed for want of patients. Government intervention is heavy in the pharmaceutical sector. It goes beyond checking the safety and efficacy of new products and focuses on patient access. Governments rightly feel that access to pharmaceutical products should not depend on personal income. In many countries, now including the US, governments have stepped in as payers of last resort for prescription drugs and, in many instances, as payers of first resort. Governments and firms recognize that the R&D investment needed to deliver a new drug to market is very high and has to be recovered in the sales of product. They also recognize that the marginal cost of manufacturing additional product is typically low. Making extra pills generally costs very little. The economic theory that describes this situation is called Ramsay Pricing.65 In a nutshell it says that firms can maximize their returns by adjusting prices in individual markets based on the ability of consumers in those markets to pay.66 Effectively, people in poorer countries or their insurers are asked to pay less than those in richer countries. Any government can intervene, however, to fix prices at lower levels than ability to pay would indicate. In doing so, they are taking advantage of the low marginal costs of production and are effectively pushing a proportion of the R&D cost onto consumers in other markets. Tension over prices and pricing mechanisms have increased in recent years as pharmaceutical products have become a more important component of healthcare expenditures. Governments easily managed expenditures on drugs before the wave of innovations in the 1990s. Relatively few drugs were available and their total cost was not onerous. However, during the innovation wave, the sales of patented drugs in Canada, for example, showed double digit annual percentage increases year after year. Only in 2004 did the annual percentage
65 See for example: http://hc.wharton.upenn.edu/danzon/PDf%20files/Diff%20Pric%2 0for%20Pharma_Recon%20Access%20RD%20Patents_Danzon&Towse_%20IJHCfE. pdf; http://oldfraser.lexi.net/publications/forum/1998/march/health.html 66 Ability to pay is reflected in metrics such as per capita gross domestic product or purchasing power parity.
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growth in the drug bill drop below 10% reaching a level of 8.6%. It fell to 4.9% in 2005 and to in 2006 to a more manageable 3.7%.67 The period of double digit growth was driven by increased use. In fact, once drugs are introduced into Canada, price increases cannot exceed growth in the Consumer Price Index. Nevertheless, growth in the drug bill created problems for payers. Confronted with double digit inflation that, in the 1990s, seemed to be never-ending, drug plan managers around the world acted to contain costs. They did this through price controls and by reducing access to new products. Canada was part of this trend. Now that that growth in pharmaceutical costs is slowing, nations ought to rethink the balance between encouraging industrial development and containing pharmaceutical costs. Moreover, good evidence accumulated over the last decade suggests that containing pharmaceutical costs does not necessarily lead to overall reductions in healthcare and disability costs. We, therefore, have good reasons for Canada to review its public policies. 7.3 canadan mechansms that control access Canada uses several mechanisms to control access to pharmaceutical products. The primary mechanism is that of regulatory review. Health Canada assesses new products for quality, safety, and efficacy. In former years, Health Canada had difficulty in reaching performance standards for new drug review. This slowed access and resulted in a backlog of files. However, since 2004 the situation has steadily improved. The backlog has been cleared and review times are now similar to those of the US food and Drug Administration and the European Medicines Agency.68 Once Health Canada has completed its review, the Patented Medicines Prices Review Board (PMPRB), steps in. 69 The board was created in 1987 when patent protection in Canada for pharmaceutical products was upgraded to approach international standards. Its mandate is to ensure that Canadian prices for patented drugs are not excessive. It does this by comparing the proposed Canadian price with the median price in a series of reference countries, namely france, Germany, Italy, Sweden, Switzerland,
67 http://www.pmprb-cepmb.gc.ca/CMfiles/PMPRB-AR06-en38fDK-7192007-4985.pdf 68 Analysis by SECOR commissioned by Merck frosst Canada Ltd. 69 http://www.pmprb-cepmb.gc.ca/english/view.asp?x=272#2
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the UK, and the US. It also limits price increases in Canada to changes in the Consumer Price Index. After Health Canada has done its work, drugs will be available to Canadians with private insurance coverage depending upon the scope of their plans. Any intervention of the PMPRB would be to adjust the price charged to Canadians. Citizens with provincial insurance coverage e.g. seniors, those with disabilities, and those needing social assistance have to wait for access until two more steps are completed. The Canadian Expert Drug Advisory Committee (CEDAC) of the Common Drug Review (CDR) makes recommendations whether new drug should be listed for reimbursement in the participating, provincial, and territorial drug plans.70 finally, provincial formularies generally replicate the work of the CDR and make their own assessments on whether or not to list a new drug. Notably, Qubec makes its own decisions and does not participate in the CDR. The cumulative effect of these processes is to deny Canadians with provincial insurance access to many drugs that are available elsewhere and to delay access by two to three years, when compared with the US, to those drugs that are ultimately approved for reimbursement. 7.4 what mprovements could be made? On the regulatory front, substantial improvements have already been made in timeliness of regulatory reviews. Of course industry would like to improve its success rate in achieving regulatory approval in an initial filing rather than by having to modify dossiers and resubmit them. To this end it would like to have greater communication with regulators through face-toface meetings and to have review panels of external experts involved in final decisions. Health Canada has limited resources for these activities. Industry would like to see more resources dedicated to improving the review process and is willing to pay for this through increased user fees. Looking to the future, Health Canada is working towards a progressive licensing approach in which products would be more closely monitored once they are on the market and in which the regulator might call for additional clinical trials to be carried out after drugs are initially approved. Given the high costs of post-market surveillance and of clinical trials, collaboration
70 http://www.cadth.ca/index.php/en/cdr
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between Health Canada and other regulatory agencies would be beneficial so that costly country-specific requirements are avoided. The PMPRB could simplify its approach and would thereby improve Canadas attractiveness from an investment perspective. At present, the Board looks at average transaction prices for pharmaceutical products71 as opposed to maximum prices. The approach discourages firms from offering discounts to large purchasers. It also penalizes firms for offering free drugs in situations of urgent need. We presume that these are unintended consequences of the Boards actions. In our view, the PMPRB should consider maximum prices only which would be completely consistent with its mandate. If it were to do so, the administrative burden for all concerned would be eased and drug prices in Canada would probably be lower than they are now. Arguably, the CDR which reviews drugs from a cost/benefit perspective should be disbanded since provinces tend to make their own listing decisions irrespective of the CDR recommendations. Provinces have strong variations in listing decisions. An analysis by Brogan Inc. of several provincial plans showed the following numbers of pharmaceutical products listed for reimbursement in 2005/06: British Columbia4,205, Alberta3,700, Saskatchewan2,245, Ontario2,600 and Qubec5,000. In the same period, provinces took the following number of days on average to list new products on their formularies 476 (British Columbia); 355 (Alberta); 259 (Saskatchewan); 632 (Ontario) and 197 (Qubec).72 Notably, Qubec listed more drugs and took less time to do it than the other provinces in part perhaps because it is not part of the CDR. A study performed in October 2006, determined that the CDR recommended only 26 out of the 50 drugs randomly chosen for review73. This was less than Sweden, Switzerland, UK and france but more than Australia and New Zealand. The average time to listing from the point where a drug entered the CDR process to the time of public formulary listing was an average of 403 days. Delayed access means hardship for patients and lost revenues to pharmaceutical firms. As we explained in Chapter 6, highly restrictive formularies and delayed access aim to save on healthcare costs but may actually add to them.
71 Average transaction prices include discounts and free goods provided by firms. 72 The Alberta Health and Wellness Drug ProgramAn Analysis of Drug Usage 2001-2006, Brogan Inc. 73 http://www.canadapharma. org/Media_Center/News_Releases/2006/1206-CDRInternationalComparison-fINALdraft-EN.pdf
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The listing of oncology drugs also showed strong inter-provincial variation resulting in collaboration among provinces to develop a joint oncology drug review.74 How the joint oncology drug review will unfold remains to be seen. If, like the Common Drug Review, it results in a move towards the most basic formulary this will be a retrograde step since cancer is beset by problems of drug resistance and is best attacked by using cocktails of many different drugs. In intellectual property rights, Canada does not provide special protection for orphan drugs i.e. those required for diseases affecting very small patient populations nor does it provide patent term restoration.75 7.5 summary Overall some improvements could be made at the national level that would send positive signals to the pharmaceutical industry. These could include for example: Closer interaction between firms and regulators during review processes aimed at facilitating first pass approvals; Return of the PMPRB to its mandate of ensuring that Canadian prices are not excessive by focussing on maximum prices charged in Canada instead of average transaction prices; Elimination of duplication of effort between the CDR and provincial listing processes which could imply closing the CDR; and Improvements in intellectual property rights by introducing orphan drug protection and patent term restoration. These actions would lift Canadas fortunes in the competition for industrial investment.
74 http://www.health.gov.on.ca/english/providers/program/drugs/ drug_submissions/inter_oncology_drugs.html 75 http://content.healthaffairs.org/cgi/reprint/1/2/6.pdf
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INTERNATIONAL WINNERS AND LOSERS
8.1 the publc polcy dchotomy Most regions want knowledge-based economic activities and develop public policies to encourage them. Biopharmaceuticals are normally in the mix. The general idea is to leverage some of the public investments in life science research and healthcare into commercial activity. Experience in the US shows only about 10% of these regional development initiatives succeed. The winners have been: Locations with a major presence of multinational pharmaceutical companies (New York, Philadelphia); Early biotechnology adopters (Boston, San francisco); and Biotechnology innovators (San Diego, Rayleigh-Durham, Seattle). Given the low success rate, any betting person would try and increase the odds of winning. The easiest way to do this would be to build in a region that already had a presence of multinational pharmaceutical firmsthe approach that Qubec has taken. Despite this obvious strategy, many regions try to build a biopharmaceutical sector and, at the same time, adopt public policies that limit market access for new drugs and the profitability of pharmaceutical firms. As a consequence, pharmaceutical firms have tended to move their research activities and investments away from locations that are unattractive from a business perspective. Of course, critics argue that the industry has been profitable to excess and that public policy ought to aim to contain spending on drugs. Certainly the industry had boom years in the 1990s when a raft of drugs for diabetes, heart disease, asthma, depression and HIV/AIDS were brought to market. However, recent years have been tougher with thinning product pipelines, patent expiries, and mergers aimed at cutting costs. The stock index for major pharmaceutical firms has not grown since 2004 while the Standard and Poors industrial average grew by approximately 40% over the same
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International Winners and Losers
period.76 The pharmaceutical business is intrinsically risky. If investors are to continue financing firms that risk hundreds of millions of dollars in drug development, returns ought to be equal to or greater than those for industry as a whole. The relatively poor performance of pharmaceutical stocks in recent years is related to the productivity of the industrys R&D. The cost of R&D has steadily risen over the last decade without a corresponding increase in new medicines reaching the market place. Lengthening clinical development times, failure at late clinical trial phases, fewer blockbuster products, and tougher regulation have put pressure on pharmaceutical companies to invest carefully in their R&D and to direct it to hospitable locations. 8.2 the locus of r&d has moved from europe to north amerca Over the last 10-15 years, major pharmaceutical firms have increased their R&D expenditures in Europe, the US and Japan. However, the increase has been greatest in the US. Between 1990 and 2005 R&D spending grew by a factor of 5.1 in the US but by a factor of only 2.9 in Europe77. The US share of R&D expenditures in the major pharmaceutical markets was 34% in 1990 but by 2005 had increased to 46%.78 The data exclude R&D expenditures by smaller biotechnology firms where the US dominates.
76 http://finance.yahoo.com/q/bc?s=%5EDRG&t=5y&l=on&z=m&q=l&c=%5EGSPC 77 Council of the European Union, Accompanying document (Inter-institutional file 2007/089) to the Proposal for the Council Regulation concerning the setting up the Innovative Medicines Initiative Joint Undertaking 78 http://www.advisorybodies.doh.gov.uk/pictf/2005indicators.pdf
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Source: European Federation of Pharmaceutical Industries and Associations While R&D expenditures grew rapidly, the number of new drugs (chemical and biological entities) approved for use declined. This made pharmaceutical firms far more sensitive to the efficiency of research and the sources of revenue needed to sustain their businesses.
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Source: European Federation of Pharmaceutical Industries and Associations In the same period, leading technology research units were relocated from Europe to the US and in more recent years to emerging countries such as China and India.
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Source: European Federation of Pharmaceutical Industries and Associations 8.3 some examples of the transton Several major European firms relocated their R&D and/or headquarters to the US. In 1998, Pharmacia & Upjohn, which later merged with Pfizer, relocated its global headquarters from the UK to the US to be at the hub of the pharmaceutical industry. 79 In 2002, Novartis moved its global research headquarters from Basel in Switzerland to Cambridge in the US establishing the Novartis Institute for Biomedical Research Inc. (NIBRI).80 The headquarters of its Vaccines and Diagnostics Division moved to the US in 2006. Other companies such as Aventis (later becoming sanofi-aventis) partially relocated to establish a greater presence in North America. In 2000, Aventis established its Global Drug Development Center in New Jersey.81
79 http://www.pfizer.com/about/history/pfizer_pharmacia.jsp 80 http://www.novartisvaccines.com/press-room/news/20061214.shtml 81 http://findarticles.com/p/articles/mi_qa5311/is_200006/ai_n21456252
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8.4 why dd r&d shft from europe? The EU seems to have lost its dominant position in pharmaceutical R&D for the following reasons: The market size in North America is considerably larger than the EU, accounting for 47.7% of the worlds pharmaceutical sales versus 29.9% in Europe. The disparity is large given that the population of the EU is substantially greater than that of the US. Moreover, 66% of the sales of new medicines are generated on the US market in comparison to 24% in the EU. Pharma firms are investing where their principal customers are located. Price control policies enacted by most EU member countries kept pharmaceutical prices in line with consumer price inflation even though the costs of developing new drugs have risen sharply.82 The free market83 in the US allowed pharmaceutical prices to rise beyond the inflation rate.84 This trend helped trigger the shift of R&D from Europe to the US but caused some frustration because of the perception that Europeans are free-loading on American consumers.85 Fragmentation of the EU pharmaceutical market has resulted in parallel trade. Within the EU, member countries establish different prices for the same pharmaceutical products. With different prices in the same free trade zone, drugs flow from lower cost to higher cost locations with middlemen taking arbitrage profits. In 2005, the estimated size of parallel trade or gray market was 4.1 billion.86 To minimize the effects of parallel trade, pharmaceutical firms attempt to obtain the highest possible prices from exporting countries and have delayed product launches in those countries to provide protection from the activity. In addition, they are less likely to view countries endorsing parallel trade as appropriate locations in which to invest.
82 http://www.kellogg.northwestern.edu/academic/biotech/faculty/articles/NewRDModel.pdf 83 Except for California where the August 2006 Prescription Drug Initiative requires manufacturer to discount pharmaceuticals by 40-60% for state residents on low incomes. 84 Golec J.H., Vernon J.A., 2006, European Pharmaceutical Price Regulation, firm Profitability, and R&D Spending NBER Working Paper No. 12676 85 See: http://aei-brookings.org/admin/authorpdfs/redirect-safely.php?fname=../pdffiles/php8U.pdf and http://lists.essential.org/pipermail/ip-health/2003-October/005516.html 86 European federation of Pharmaceutical Industries and Associations, The Pharmaceutical Industry in figures Key Data: 2007 Update.
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Policies governing publicly funded R&D have resulted in a lower investment in the EU in comparison to the US. Public investment in research complements and reinforces industrial R&D.87 The US spends 0.26% of its GDP on health-related R&D, whereas in the EU the figure is only 0.04% even though every 1 of public R&D stimulates 0.93 of additional private investment. Public-private partnerships for R&D seem to be stronger in the US than in Europe88 enabling US companies to lever the fruits of public investment in basic research. Tough regulation of mergers and acquisitions (M&A) in the EU is seen as a barrier to business optimization and results in less commercial value being attributed to pharmaceutical companies. 8.5 examples of prce control schemes In the UK, pharmaceutical companies selling to the National Health Service (NHS) are subject to the Pharmaceutical Price Regulation Scheme (PPRS). This voluntary scheme, between the Government and the Association of the British Pharmaceutical Industry (ABPI), limits return on capital at 21% or profit on sales at 6%.89 In January 2005, the UK government further imposed a price reduction of 7% on all brand-name pharmaceutical products. The maximum percentages allowed for profit on sales and the return on capital might satisfy some manufacturing sectors but are probably incommensurate with the risks associated with R&D in the pharmaceutical sector. Moreover, the introduction of price roll-backs is hardly likely to encourage investment. In Belgium and Switzerland, drug prices are negotiated by government for all drugs sold regardless of the payer (private or public). Both countries have regularly used price cuts or freezes. Germany applied spending caps
87 Toole A.A., Does Public Scientific Research Complement Industry R&D Investment? The Case of NIH Supported Basic and Clinical Research and Pharmaceutical Industry R&D Zentrum fr Europische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 05-75. 88 The European Commissions Joint Technologies Initiative (JMI) attempts to responds to industry and stakeholder research needs in the EU. The JMI proposes a public-private partnership between the EC and pharmaceutical industry to pool resources. Ultimately, the goal is to increase R&D investment, improve early safety and efficacy indicators, and improve R&D productivity through greater innovation, more employments and collaborative research. 89 http://www.dh.gov. uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuidance/DH_4093395
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between 1993 and 2001 on pharmaceutical products. Germanys Statutory Health Insurance (SHI) system also acts to contain costs to stabilize contribution rates. Other approaches to cost containment include delaying and restricting formulary listings, forced generic substitution, reference pricing,90 and use of gray markets. 8.6 bayers experence wth gray markets Bayers problems in selling its drug Adalat in Europe provide good insights into the impacts of gray market trading. Between 1989 and 1993, the price of Adalat, was fixed by Spanish and french health authorities 40% lower than the price in the UK.91 Wholesalers began exploiting this disparity by purchasing Adalat in bulk in france and Spain and reselling in the UK. As a result, Bayers UK subsidiary lost half of its sales, an alleged 118 million. To combat this parallel trade, Bayer restricted its supply to france and Spain to a level sufficient for their domestic markets. The wholesalers complained to the European Commission stating that restrictions were effectively an export ban which breached EU laws. In 1996, the European Commission found in favor of the wholesalers and fined Bayer 3 million. However, Bayer later appealed to the European Court of first Instance, and the ruling was overturned. The decision was based on lack of evidence to prove either Bayers intent to impose an export ban or that sales were made on the condition of an alleged ban. However, the Court did not address the negative commercial impacts of parallel trade. 8.7 some dsagree wth the concept of r&d mgraton Some have challenged the idea that R&D migration is a response to public policies on market access, reimbursement, and R&D. They suggest it is merely a re-distribution of activities from traditional players (UK, france, and Germany) to newcomers.92 They also challenge the use of metrics such as R&D as a percentage of GDP or of sales and the ability of firms to accurately measure R&D expenditures by geographical region.
90 See, for example: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=453801 91 Beever A., Rediscovering the Law of Negligence Hunt Publishing 92 Messinis G., Is Europe a Laggard in Pharmaceuticals? R&D Joint Ventures, Patent Quality and R&D Productivity
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What are the factors that determine the investment of R&D in any particular location? Pharmaceutical companies traditionally preferred to invest in R&D in their home countries so that they could exercise tight management control.93 However, this approach is breaking down. Almost all countries want to capture investments in pharmaceutical R&D, to stimulate knowledge-based economies and to lever public investments in life-science research. Some are prepared to negotiate pharmaceutical pricing, market access, and intellectual property rights in order to capture industrial R&D. Other countries may have very rich intellectual capital in leading research areas such as genomics and become must have locations where pharmaceutical firms build R&D labs. Yet others may have very low costs of conducting R&D that are simply too good to ignore. The environment for attracting industrial R&D dollars is highly competitive and many variables are at play. Any individual nation is part of a global competition for investment. At the global headquarters of multinational pharmaceutical firms, the CEOs of national subsidiaries present their arguments for R&D investments in the countries they represent. Multinationals shift investments to areas where the commercial environment is favorable. Major investment decisions may be recommended by national CEOs but are not decided by them. In western industrialized countries, the major driving forces in location of R&D are market access and pricing:94 Good resources for research are available in almost all of them. Restrictive pricing and market access policies explain why Europe has lost R&D investment and why a region such as Qubec even with its relatively small population has attracted its fair share. To a limited extent North America also represents a must have research location because it is strong in biotechnology. Canada and the US were early biotechnology adopters. They quickly dealt with regulations to facilitate industrial innovation, committed public research investments in biotechnology, and encouraged venture capital investment to seed new firms. To fill thinning pipelines, major pharmaceutical firms are increasingly looking to alliances with emerging biotech companies, hence a special interest in North America.
93 European Commission The 2005 EU Survey on R&D Investment Trends in 10 Sectors 94 Gambardella A., Orsenigo L., Pammolli f., Global Competitiveness in Pharmaceuticals: A European Perspective European Commission, November 2000
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8.8 potental mpact of chna and nda The tussle for R&D investments is generally seen as a competition between the US and Europe but the world economy is going global and many nations are outsourcing work, including R&D, to low cost providers. The US, for example, is increasingly reliant on outsourced R&D. In 1970, 8% of US pharmaceutical R&D conducted by US based firms or by US subsidiaries of multinational firms was outsourced but by in 2005, the figure was 20%.95 Currently, China and India are minor recipients of outsourced R&D but their share is growing rapidly. The two countries experienced a 23% increase in R&D investment in a single year between 2005 and 2006.98 Both India and China present attractive R&D opportunities based on low costs and rising quality of science. On the manufacturing side, China and India have already demonstrated their prowess. China is the worlds largest manufacturer of active pharmaceutical ingredients (APIs). Indian manufacturers have demonstrated their ability to take a product from API to finished pills at a quality high enough for regulated markets. 96 Moreover, Indian companies are more compliant with international standards and benefit from a highlyeducated talent pool. The country has the largest number of US food and Drug Administration (fDA) approved plants worldwide. Indian intellectual property protection does not yet seem to be up to international standards which may hurt its prospects. for example, Novartis recently lost a landmark case challenging Indias patent law after being denied a patent for its leukemia drug Gleevec. Novartis believed the law was in breach of the Trade Related Intellectual Property Rights (TRIPs) Agreement. following the verdict, Novartis pulled $120 million earmarked for R&D investment and may reassign a portion to the already planned $100 million fund to China. In 2006, Chinas total R&D expenditure for all industrial sectors reached a record $38.5 billion, a 22% increase from 2005.97 This equates to approximately 1.4% of its GDP. Like the US, the private sector invests most with public funding contributing only 30% of the total.
95 Matheny J., Brief on the Global Biotechnology and Pharmaceutical Industries Center for Biosecurity, 15 January 2007 96 http://www.pharmabiz.com/article/detnews.asp?articleid=19320&sectionid=50 97 http://www.china-embassy.org/eng//xw/t292778.htm
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Chinas latest five-year plan targets biotechnology and pharmaceuticals for massive government investment. Two of the ten new national laboratories being planned have been earmarked for drug development and protein engineering. Already many of the multinational pharmaceutical companies firms have invested in China setting up R&D facilities mostly in the Shanghai region. Company
Novartis
Activity
R&D center
Description
A global R&D center in Shanghai
Investment Amount
$100 million
Novartis
Construction of a drug Suzhou Novartis development center Pharma Technology in Changzhou
$83 million
AstraZeneca AstraZeneca Innovation Center GlaxoSmithKline R&D center
Center focused on translational science in oncology $100 million Neuroscience R&D center in Shanghai Shanghai R&D center with clinical development facilities in the areas of oncology, autoimmune and metabolic diseases, and anemia $50 million
Roche
Pharma Development Center
$100 million
Genzyme
R&D center Pfizer China Research and Development (R&D) Center
Environmentally responsible R&D center in Beijing in the areas of orthopedics, transplant and immune disease, oncology, endocrinology and cardiovascular disease $90 million R&D facility to provide drug development support capabilities and biometric expertise
Pfizer
$25 million
Source: Company websites Despite deficiencies in IP protection and the regulatory frameworks of India and China, efforts by governments and pressure from multinationals have
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rapidly improved the regulatory environment. Asian countries will become global competitors for R&D within the next decade. 8.9 conclusoncanada and qubec at a crossroad Canada and Qubec are at a crossroad in terms of public policy decisions. The federal government with Qubecs enthusiastic support upgraded intellectual property rights around 1990 and captured a substantial increase in pharmaceutical R&D. In the rising tide of investment, Qubec maintained its disproportionately high share by introducing favorable reimbursement rules and R&D incentives. Nationally, however, Canada still does not offer patent term restoration or orphan drug legislation. Most importantly, provinces have restrictive formularies that limit market access for new drugs. Canada has to decide whether it wants to be more like the US in attracting investment or more like the Europeans who are prepared to make sacrifices in industrial innovation by applying tough financial controls on the pharmaceutical market. The costs of doing business are relatively similar in Canada, the US, and Europe. Consequently, public policy makers could, in principle, figure out the costs and benefits of adjusting strategies in order to gain innovation or to limit pharmaceutical expenditures. Qubec, to its credit, took a holistic view of these costs and benefits. Other governments were not necessarily as wise and took a silo approach. While one group of strategists would try to bolster industrial innovation, another would independently work to contain healthcare expenditures. Now, however, China and India are emerging as low cost providers of R&D and innovation. These wildcards are bound to shift the underlying economics driving public policy and investment decisions. If Canada and Qubec want to grow their pharmaceutical sectors, moving aggressively to become highly competitive in specific niches makes good sense. China and India will emerge as low cost R&D providers. However, Qubec and Canada can develop winning strategies by focusing on quality of work, strict adherence to regulation, increased productivity, improved commercialization of publicly-funded R&D, and respect for intellectual property rights.
66
LESSONS LEARNED fROM QUBECS ExPERIENCE
In the mid-1980s Montral, the engine of Qubecs economy, stalled. Unemployment was at record highs, a substantial part of its financial sector had migrated to Toronto together with a number of important corporate head offices. Heavy industries were rapidly declining. Instead of making strenuous efforts to prop up failing sectors, Qubec focused on knowledgebased industries. The most successful were pharmaceuticals, aerospace and information and communications technologies. The sectors were not chosen out of the blue. Montral already had substantial industrial activity in all three. The goal was to build on strong foundations, to encourage international outreach, and in-flows of investment. To encourage the pharmaceutical sector, Qubec lobbied the federal government of Canada to bring its intellectual property laws up to international standards. This was largely achieved by the time that the North American free Trade Agreement was signed in 1992. In return for enhanced intellectual property protection, the pharmaceutical industry rapidly increased the amount it spent on R&D. Industry honored its commitment by increasing R&D spending in Canada to 10% of sales by 1996. While investment grew very rapidly in Canada, Qubec with only 25% of population, captured and retained 45% of R&D investments. This was done first through advocacy; Qubec pushed hard for better intellectual property rights and for pharmaceutical investment. However, other measures gave strong signals that the province was open for pharmaceutical investment. These included: formulary listings that were broader than those offered by other provincial insurance plans; The fifteen Year Rule which allowed patients covered by provincial insurance to receive brand name drugs for fifteen years after they were listed on the provincial formulary even if a generic version had become available in the interim; Tax credits for investment in research and development; and favorable corporate tax rates.
67
Qubec also took a host of smaller initiatives that encouraged the sector. for example, it: Helped launch and fund organizations such as Montral In-vivo that promoted public-private networking; Encouraged the formation of venture capital pools; and Matched funds provided by the federal government for research in genomics and to enhance research facilities in universities and hospitals. The costs of these initiatives were almost certainly calculated at the time they were launched but the potential benefits could not have been completely known. The province simply acted time after time to encourage the industry irrespective of the political party that held power. The approach worked. The brand name pharmaceutical industry made a major contribution to the economy providing 9,200 direct jobs and creating 17,000 jobs among suppliers. The percentage of sales spent on R&D has been in the order of 16.2%, a figure typical of regions that are home to the headquarters of multinational pharmaceutical firms. Qubec demonstrated that pro-pharma initiatives work. They create good jobs, bring investment to a region and lever public expenditures in life-science research. Interestingly, while Qubec spent more per capita on prescription drugs than other large provinces, it spent substantially less on healthcare per person. It demonstrated that providing good access to a large formulary as part of industrial policy is not at odds with efficient healthcare. If anything, one would have to conclude the reverse, that providing good access to innovative drugs reduces healthcare expenditure 9.1 what can be learned from other regons? Experience in the US shows that many regions aspire to economic growth through bio-sciences but only about one in five succeed. Those that have been successful were early biotechnology adopters, were highly successful in commercializing life science research or had multinational pharmaceutical firms in their territory as anchor tenants. The US experience as well as that of several European clusters and that of Qubec suggests that if a region has multinational firms in its domain, it should build on this presence as a reasonably sure way to develop its pharmaceutical sector. Some regions of Europe have adopted this approach 68
Lessons Learned From Qubecs Experience
but on the whole, Europes attitude to multinational pharmaceutical companies has been somewhat negative through the imposition of price controls, price roll-backs and restricted formulary listings. As a consequence, the percentage of world pharmaceutical research has increased dramatically in the US over the past fifteen to twenty years at the expense of Europe. Like the US, Qubec has been a winner in this game. 9.2 can qubec contnue to grow ts ndustry? Qubecs fortunes now rest to some extent with Canada as a whole. The federal government still has not provided intellectual property rights available elsewhere such as patent term restoration and orphan drug legislation. In addition, governments, both provincial and federal, provide pharmaceutical insurance for about half the population. However, they have thrown up access barriers to control pharmaceutical spending and formulary listings without much regard to the savings that innovative products can deliver to the healthcare system as a whole. Access has to change at the national level if Qubec is to continue its growth. Qubec could also advance by streamlining clinical research, by making ethics approvals and contracting with hospital centers far more efficient and less fragmented. Wide deployment of patient electronic health records would also help optimize and rationalize medical care and the use of pharmaceutical products. Europe and the US are not the only competitors for pharmaceutical investment Qubec faces. Eastern Europe is becoming an important location for lower cost, high-quality clinical trials. In addition, India and China are emerging as inexpensive R&D providers. They already dominate the world market for the supply of active pharmaceutical ingredients. China, in particular, is emerging as a low-cost provider of discovery research in fields such as genomics and medicinal chemistry. To remain competitive, Qubec will not be able to rest on its laurels but will have to pay close attention to costs and to niches where it excels. 9.3 the bottom lne Many regions have tried to build biopharmaceutical sectors by focussing their efforts on creating new companies while enacting policies that discourage large multinational pharmaceutical firms. Most often, this strategy has not succeeded. Qubec did the opposite. It encouraged both 69 Lessons Learned From Qubecs Experience
emerging companies and large multinational pharmaceutical firms. It succeeded in building a substantial pharmaceutical sector. Having small, medium-sized and large firms in a pharmaceutical cluster creates a far healthier environment in which the sector can prosper.
Lessons Learned From Qubecs Experience
70
APPENDIx 1: PHARMACEUTICAL SECTOR PROfILE
Leadng Pharmaceutcal Multnatonals and ther Research and Manufacturng Actvtes In Qubec Company Activity Description
R&D center developing drug delivery systems for pain medication. Employs 130 researchers. R&D center developing antiviral agents (HIV, AIDS, and Hepatitis C). Employs 170 researchers. North American headquarters for GSKs vaccine R&D. CDN $50 million Employs a total of 1,400 expansion of people in Quebec. its R&D site Merck frosst Canada Center for Therapeutic Research focused on inflammation, asthma, bone metabolism, diabetes, apoptosis and proteomics. Employs 300 researchers.
Appendix 1: Sector profile Investment Amount
AstraZeneca R&D Boehringer Ingelheim (Canada)
CDN $100 million per year
R&D
GSK BIO
R&D
Merck frosst (Canada) R&D
CDN $115 million per year
Manufacture of antibody drug candidates for clinical trials. US $100M over the next facility will commence full AstraZeneca Manufacturing scale production in 2009. five years One of two North American vaccine production sites manufacturing 75 million doses of influenza Manufacturing vaccine per year. CDN $199 million expansion of its production facility
GSK BIO
71
Company
Wyeth Canada
Activity
Description
Investment Amount
Manufacturing Production of pharmaceuticals
Source: Investissement Qubec Appendix 1: Sector profile Leadng Botechnology Companes and ther Actvtes n Quebec Company Activity Description
R&D in oncology and endocrine therapy. Aeterna Zentaris also owns more than 60% of Atrium Biotechnologies Inc., which develops and commercializes products for the cosmetic, pharmaceutical, chemical and nutritional industries. Research in oncology and neurology. It is pioneering the use of anti-sense for cancer treatment. R&D in oncology and infectious diseases. Research using proteomics to identify new protein biomarkers to improve clinical development and pharmaceutical research. Development of drugs to treat pathologies such as diabetes, congestive heart failure and HIV through their pioneering bioconjugation technique.
Aeterna Zentaris Aegera Therapeutics Ambrillia Biopharma Caprion Protomique
R&D
R&D R&D
R&D
ConjuChem DiagnoCure
R&D
R&D / R&D and commercialization of diagnostic Manufacturing tests for the early detection of cancer. R&D of controlled-release drug delivery. Specialises in reformulation in collaboration with multinationals.
Labopharm
R&D
MethylGene
Development and commercialization in areas such as oncology and infectious R&D / diseases. Specialises in medicinal, Manufacturing combinational and analytical chemistry.
72
Company
Activity
Description
Bellus Health (formerly Neurochem) ProMetic Life Sciences Thallion Pharmaceuticals
R&D in neurological diseases such as AA amyloidosis and Alzheimers disease. Bellus Health also owns OVOS Natural R&D / Products, a nutraceutical division Manufacturing for mental well-being products. R&D and manufacturing in areas cancer R&D / treatment and inflammatory/autoimmune Manufacturing diseases. R&D Development in the areas of infectious diseases and oncology. R&D in endocrine and metabolic disorders, e.g. HIV-related lipodystrophy, cachexia associated with chronic disease, and type II diabetes.
Appendix 1: Sector profile
Theratechnologies R&D
BD Diagnostics - GeneOhm
Production of diagnostic test kits for the detection and control of bacterial infections. It is expected to create 100 new jobs through Manufacturing a new manufacturing facility.
Source: Investissement Qubec leadng clncal research organzatons and ther actvtes n qubec Company
Algorithme Pharma
Description
Specializes in Phase I trials and bioequivalence. facilities include over 272 beds and the company employs 300 people. Specializes in phase I and phase II trials. Tests products and monitors 100 clinical trials per year for various companies; 50% being American, 20% Canadian et 20% European. Employs more than 700 researchers. It is a subsidiary of PharmaNet Development Group.
Anapharm
One of the worlds largest preclinical CROs. Employs 1,600 Charles River employees in Montreal alone and is expanding to Sherbrooke. Laboratories An initial $35M (CDN) investment will create 160 jobs.
Source: Investissement Qubec
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Groupe SECOR Group, 2009

How To Build A Pharmaceutical Industry

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how to build a pharmaceutical industry: qubecs story

by david griller and daniel denis

ISBN 978-0-9811583-0-3 Price $24.95

How to Build a Pharmaceutical Industry:

ABOUT THE AUTHORS

9 9.1 9.2 9.3

HOW DID QUBEC BUILD A PHARMA INDUSTRY?

How Did Qubec Build a Pharma Industry?

INNOVATION fIxES A fALTERING ECONOMY

Innovation Fixes a Faltering Economy

Innovation Fixes a Faltering Economy

Innovation Fixes a Faltering Economy

Innovation Fixes a Faltering Economy

Innovation Fixes a Faltering Economy

Innovation Fixes a Faltering Economy

A BRIEf PORTRAIT Of QUBECS LIfE SCIENCES SECTOR

A Brief Portrait of Qubecs Life Sciences Sector

A Brief Portrait of Qubecs Life Sciences Sector

http://cancercenter.mcgill.ca http://www.crchul.ulaval.ca http://www.icm-mhi.org http://www.mni.mcgill.ca

A Brief Portrait of Qubecs Life Sciences Sector

http://www.frsq.gouv.qc.ca http://www.innovation.ca/index.cfm http://www.nserc.gc.ca/index.htm http://www.newswire.ca/en/releases/archive/february2008/12/c9140.html

A Brief Portrait of Qubecs Life Sciences Sector

Source: Deloitte survey of Rx&D members

35 The members of industry association Rx&D.

Source: Rx&D. We thank Rx&D for generously sharing this information

QUBECS SUSTAINED PRO-PHARMA POLICIES

Qubecs Sustained Pro-Pharma Policies

40 for an assessment of Irelands success see: http://slate.msn.com/id/2111312/

Qubecs Sustained Pro-Pharma Policies

Qubecs Sustained Pro-Pharma Policies

Qubecs Sustained Pro-Pharma Policies

Qubecs Sustained Pro-Pharma Policies

Qubecs Sustained Pro-Pharma Policies

Qubecs Sustained Pro-Pharma Policies

Qubecs Sustained Pro-Pharma Policies

Qubecs Sustained Pro-Pharma Policies

Qubecs Sustained Pro-Pharma Policies

QUBECS APPROACH TO PHARMACEUTICAL INSURANCE

Qubecs Approach To Pharmaceutical Insurance

Qubecs Approach To Pharmaceutical Insurance

Qubecs Approach To Pharmaceutical Insurance

Qubecs Approach To Pharmaceutical Insurance

COULD CANADA DO MORE TO BUILD THE SECTOR?

Could Canada Do More To Build The Sector?

Could Canada Do More To Build The Sector?

67 http://www.pmprb-cepmb.gc.ca/CMfiles/PMPRB-AR06-en38fDK-7192007-4985.pdf 68 Analysis by SECOR commissioned by Merck frosst Canada Ltd. 69 http://www.pmprb-cepmb.gc.ca/english/view.asp?x=272#2

Could Canada Do More To Build The Sector?

Could Canada Do More To Build The Sector?

Could Canada Do More To Build The Sector?

74 http://www.health.gov.on.ca/english/providers/program/drugs/ drug_submissions/inter_oncology_drugs.html 75 http://content.healthaffairs.org/cgi/reprint/1/2/6.pdf

INTERNATIONAL WINNERS AND LOSERS

International Winners and Losers

International Winners and Losers

International Winners and Losers

International Winners and Losers

79 http://www.pfizer.com/about/history/pfizer_pharmacia.jsp 80 http://www.novartisvaccines.com/press-room/news/20061214.shtml 81 http://findarticles.com/p/articles/mi_qa5311/is_200006/ai_n21456252

International Winners and Losers

International Winners and Losers

International Winners and Losers

International Winners and Losers

International Winners and Losers

International Winners and Losers