Laura DawsonIf Canada wants to continue to be a player in the pharmaceutical sector, it must provide stronger patent protection and more streamlined regulatory and approval processes to protect the financial investments that research-based companies make.

By Laura Dawson, July 15, 2016

When Prime Minister Justin Trudeau took center stage at the World Economic Forum in Davos, Switzerland in January of this year, he declared that the world should not only know Canada for its resources but also know “Canadians for their resourcefulness.” The prime minister’s comments emphasize that Canada’s future prosperity depends on its ability to maximize its strengths in the knowledge economy.

The biopharmaceutical sector is key example of the how the right government actions can accelerate future growth while the wrong actions (or inaction) can block competitiveness. Not only is the biopharmaceutical sector important for the expansion of Canada’s knowledge economy, biopharmaceutical medicines can contribute to longer, more productive lives for Canadians.

The case for pharmaceutical innovation

Technological breakthroughs in medicines are now the most significant contributor to improvements in human health and longevity. Between 1986 and 2000, new therapies were responsible for 40 percent of the increase in life expectancy in both developing and high-income countries; between 2000 and 2009, that share increased to 73 percent.

Investment in innovative medicines generates significant cost savings elsewhere in the health care system. A 2013 Conference Board of Canada study examined the health and economic benefits associated with pharmaceutical spending in Ontario from 2007 to 2012. It concluded that spending $1.22 billion would generate offsetting health and societal benefits of nearly $2.44 billion. Some of the benefits cited by the Conference Board’s study included reduced demand for hospital services and increased productivity in the workplace.

Life sciences have some of the highest rates of investment in the world and the largest portion of life sciences investment is directed to research and development (R&D). In 2014, global R&D investment was estimated at $200 billion, of which biopharmaceutical research was estimated at $51 billion.

In Canada, R&D investment in pharmaceuticals is not robust. According to Statistics Canada, between 2007 and 2015, R&D in pharmaceuticals and medicine manufacturing fell by 55 percent. This cannot be blamed on declines across the board. Even as pharmaceutical investment lagged, R&D increased by 63 percent in aerospace and 41 percent in scientific sectors in the same period. The Trudeau government’s 2016-2017 Budget indicates that the new government is serious about public R&D investment in medical innovation. For the biopharmaceutical sector, planned spending in health research and genomic technologies are particularly important. However, government investment is not enough; another critical aspect is a supportive policy and regulatory framework to create an enabling environment for innovation.

What are biopharmaceuticals?

Most drugs sold today are “small molecule” drugs that are made of pure chemical substances and are created through predictable chemical processes that produce consistent results, time after time. Aspirin is one example of such a drug. However, many of today’s important medications that treat conditions such as rheumatoid arthritis, anemia, low white blood cell counts, inflammatory bowel disease, and various forms of cancer are “biopharmaceutical” drugs.

Compared to small molecule drugs, biopharmaceutical drugs (also called biologic drugs) are complex mixtures that can include whole cells or derivatives from human, animal, plant, or micro-organism sources.

Since biologic drugs are manufactured within cells, each of which imposes its own variabilities on the process, even minor changes during their production can cause significant changes in results and efficacy. Since biopharmaceutical drugs are far more structurally complex than traditional small molecule drugs, they are more challenging to produce and are, therefore, more costly to develop.

Precision medicine as the future of health care

Some of the most promising therapeutic products are biopharmaceutical drugs that are the result of advances in human genomic research. These drugs are key to providing targeted and effective treatments for chronic diseases. Biologic drugs for such conditions as Crohn’s disease, rheumatoid arthritis, autoimmune disorders, and certain types of cancer are already providing better interventions to cure or manage illness and disease. For example, the five-year survival rate of chronic myelogenous leukemia has grown from 31 percent to 89 percent today, thanks to targeted biopharmaceutical therapies. Targeted biopharmaceutical therapies are increasingly referred to as “precision medicine.”

The Canadian Cancer Society estimates that nearly 200,000 Canadians were diagnosed with cancer in 2015 and it was the cause of death for 75,000 Canadians that year. Previously, treatment options were limited to surgery and powerful chemotherapy drugs, derived from traditional small molecule drugs, with problematic side effects. But precision medicine provides new hope for cancer patients.

It is now possible to map all the cells in the body and then accurately identify genes that have cancer-causing mutations and create new drugs to stop specific gene mutations. The number of new drugs being developed is increasing dramatically. Between 2008 and 2012, the US FDA approved only two new anti-cancer drugs, but since 2013, more than 30 have been approved.

The economics of biopharmaceutical drug development

In the early 2000s, when genome mapping was in its infancy, the cost of sequencing the human genome ran into the hundreds of millions of dollars. Today, advances in technology and micro-processing speed have reduced the cost to just a few thousand dollars. Nevertheless, the complexity and variability of biopharmaceutical drugs still makes them much more costly to develop than small molecule drugs. The higher costs of biopharmaceutical development have pushed the average cost to develop a prescription medicine and bring the drug to market from $1 billion through the 1990s to around $2.6 billion today. It takes more than 10 years to develop a new drug from inception through to marketing approval. But the time and costs are producing results. IMS Health reports that up to 37 new products will be launched in 2016, up from an average of 25 to 30 products per year between 2005 and 2010.

There are long-term socioeconomic gains for human health from the efficient treatment of disease. Economic analysis suggests that every dollar invested in medical innovation generates an average of three dollars in future health benefits. As well, biologic technologies allow for conventional therapies to be more effectively targeted, lowering costs and improving patient outcomes. For example, an estimated 17,000 strokes can be prevented each year in the United States as a result of a genetic test to properly dose blood thinners.

The group representing American pharmaceutical manufacturers, PhRMA, estimates that targeted therapies save up to $7 for every $1 spent on medication for patients with diabetes, high cholesterol, or high blood pressure. Precision medicines are preventing complications from chronic diseases, reducing the number of visits to the emergency room and the length of hospital stays, as well as helping patients avoid major surgeries. In Canada, the Conference Board of Canada concludes that the costs of pharmaceutical innovation are more than offset by reductions in health care costs and productivity losses associated with illness.

Pharmaceutical contributions to the Canadian economy

Canada has a long history of biomedical innovation. Made-in-Canada innovations include the use of insulin to treat diabetes, the discovery of stem cells, and clinical trials for the polio vaccine at Connaught Medical Research Laboratories. In 2014, more than 26,000 Canadians were employed in pharmaceutical manufacturing facilities, mostly clustered around Toronto and Montreal. According to Industry Canada data, sales of research-based pharmaceutical products totaled nearly $14 billion in 2013, approximately 77 percent of all drug sales in Canada.

The pharmaceutical industry is one of Canada’s leading sources of research and development. Twenty pharmaceutical companies were among Canada’s Top 100 R&D spenders in 2013. Research-based pharmaceutical companies in Canada invest in basic research, but most investment is concentrated in applied research (which includes clinical trials and manufacturing processes).

The pharmaceutical industry accounts for around 10 percent of Canada’s business-based R&D and a quarter of its venture capital, but Canada has relatively low absolute levels of both when compared with other developed countries, particularly the United States.

While investment still exceeds $1.3 billion annually, the share of investment by research-based pharmaceuticals in Canada has been declining as the global pool of $135 billion migrates to other jurisdictions. Meeting the demand for new innovative therapies requires considerable investment by research-based companies, strong patent protections, and streamlined regulatory and approval processes to ensure that inventers can benefit from the billions of dollars spent in new drug development.

Canada is falling behind

Biopharmaceutical research is an important component of Canada’s knowledge economy. There is a strong foundation for biopharmaceutical growth as a result of early investment in the innovative pharmaceutical industry, a skilled workforce, and excellent education and research organizations. However, Canada is falling behind to such an extent that the Pugatch Consilium, which runs the global Biopharmaceutical Competitiveness and Investment Survey, calls Canada an “outlier” among countries of similar levels of development. According to the Pugatch survey, one of the main impediments to Canada’s competitiveness is life sciences patenting and patentability standards that are out of sync with international best practices.

A mediocre IP environment

Canada has a middling reputation for its intellectual property (IP) protection. While new developments emerging from the Comprehensive Economic and Trade Agreement with the European Union (CETA) and the Trans-Pacific Partnership (TPP) have helped to update certain aspects of Canada’s IP regime, its international reputation (and thus ability to attract investment) is adversely affected by legal decisions on patent utility (discussed below).

In the most recent edition of the Global Intellectual Property Center’s International IP Index, Infinite Possibilities, which maps the IP environment of 38 economies from around the world, Canada is ranked 15th, lagging behind major trading partners such as United States, the EU, and Japan. Historically, periods of strong IP protection have helped to spur investment in R&D in new and innovative drugs. For example, the 1987 and 1992 changes to Canada’s Patent Act were followed by a 1500 percent increase in pharmaceutical R&D investment between 1998 and 2002.

However, new investment is migrating to other regions and the Pugatch Consilium identifies IP as one of the key disincentives to investment in Canada. One of the gaps that the CETA and TPP are helping to fill is patent term restoration (PTR). This is remedial time that can be added at the end of a company’s patent life to help compensate for clinical development time and the time required to obtain approval from regulatory authorities. Under the CETA, Canada agreed to provide up to two years of PTR. The TPP extends this commitment to three to five years.

Data protection is another area of concern. This refers to the period of time when the innovator retains control over clinical testing data prior to making it available to generic manufacturers who do not conduct their own testing. Canada traditionally provided a maximum term of up to 8.5 years of data protection. The TPP requires different terms of protection for chemical entities (small molecules) and biologic drugs. But the effective period of protection for either drug type does not exceed Canada’s current 8.5-year period. Since the US offers 12 years of data protection for biologics domestically, Canada should consider offering the same in order to remain competitive with the United States.

One of the most problematic gaps is patent utility, i.e., usefulness of a drug. In a number of recent decisions, Canadian courts have invalidated the utility of certain patents, meaning that they have determined that the drugs are not uniquely useful any longer, which is creating a chilling effect on pharmaceutical investment in Canada. Critics charge that Canada’s imposition of a higher standard of utility than that used by other developed countries puts many patents at risk. Also, it is argued that questions of whether or not a drug is effective should be evaluated through clinical testing, not by judges. Since 2005, when the the new utility standard emerged, 18 pharmaceutical patents have been invalidated. In the previous 25 years only two pharmaceutical patents were invalidated for lack of utility.

Recent cases, such as Federal Court of Appeal Canada’s Sanofi-Aventis v Apotex Inc. (2013) case, suggest that a return to a more moderate interpretation of utility may be on the horizon. In order to attract investment in the challenging, expensive, but also hugely rewarding biopharmaceutical sector, Canada must build and maintain a world-class standard of IP protection for innovation.

Other challenges

In addition to the main problems associated with Canada’s mediocre protection of intellectual property, some of the generalized weaknesses affecting Canada’s biopharmaceutical sector include poor commercialization of research, lack of governmental support for the biomedical sector, and a high-cost environment.

Taken together, lags in the system not only retard biopharmaceutical industry growth as a contributor to the Canadian economy, they are also affecting the quality of health care available to Canadians. Canadians face long delays for access to new drugs that are already being used safely and effectively in peer group countries. According to IMS Health, only 59 percent of cancer medicines were covered in public drug plans, ranking Canada 17th out of 20 peer countries, and only 23 percent of new biologic medicines were reimbursed in public drug plans, ranking Canada 19th out of 20.

What an innovation ecosystem looks like for biopharmaceuticals

An innovation ecosystem creates virtuous circles of sustainable growth by providing a network of mutually reinforcing factors. These include facilitative laws and policies, education and research centers, R&D, and a climate of public and private support for innovation. In the biopharmaceutical sector the ecosystem encompasses three operational areas:

  1. Access to, and support for, human capital through education and research centres.
  2. A regulatory and legal framework that provides robust legal protections and an enabling environment for the development of new knowledge.
  3. A value-based approach to access to medicines that looks beyond short-term costs to long-term patient well-being.

The biopharmaceutical sector provides a double win for Canada. It is a key contributor to high-quality patient care and efficient health care spending while at the same time generating employment and contributing to the growth of Canada’s knowledge economy. In order to create the sort of environment that will enable the knowledge economy to flourish, everyone from governments to the public to the pharmaceutical industry itself must be part of the discussion about the opportunities and challenges that new technologies pose for health care research.

Laura Dawson, Ph.D. is Director of the Canada Institute at the Wilson Center in Washington, DC and director emeritus of Dawson Strategic. Previously, she served as senior advisor on economic affairs at the United States Embassy in Ottawa and taught international trade and Canada-US relations at the Norman Paterson School of International Affairs. She is a Senior Fellow with the Macdonald-Laurier Institute. She wishes to thank Kate Salimi for her research and drafting support on this article.

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