PMPRB Annual Report Suggests Slowdown in Canadian Drug Sales

The PMPRB reports on key pharmaceutical trends and on Research & Development (R&D) expenditure by pharmaceutical patentees. It also has a regulatory role, ensuring that the prices of patented medicines are not excessive. In its 2005 annual report, the federal agency noted the following trends across three crucial areas of pharmaceutical expenditure.

Sales

• The Board’s report found that total sales of drugs in Canada rose to C$16.1 billion in 2005. This represented just a 1.3% increase over 2004, the lowest rate of year-on-year (y/y) growth observed by the board in the last 15 years.
• According to the board, sales of patented drugs increased by 5.5% in 2005 to C$11.5 billion. This was the lowest rate of expenditure growth in this sector since 1994. This continues a general trend of decline in growth rates for patented medicine sales that began in 1999, when growth hit 27.0% y/y.
• The share of total drug sales accounted for by patented medicines rose to 71.4%, continuing the upward trend that the board has observed since 1994, when patented drugs accounted for just 40.7% of total drug sales.
• The board also reports on where spending growth within the Canadian market is focused. In 2005, the board found that the greatest drivers of drug expenditure were the antineoplastics and immunomodulating agents (such as chemotherapy drugs), followed by drugs related to the cardiovascular system and then by those related to the alimentary tract and metabolism. The report also noted that there was a large decline in sales of drugs related to the musculoskeletal system, particularly among drugs in the anti-inflammatory and anti-Rheumatic class. A big factor in this decline was withdrawal of the COX-2 inhibitor Vioxx (rofecoxib) from the Canadian market in 2005.

Prices

• The PMPRB found that the price of patented medicines in 2005, as measured by the Patented Medicine Price Index (PMPI), remained relatively stable, rising by 0.8% on average. Although this is marginally up from 2004, when there was a 0.2% decrease, it is still considerably lower than Canada’s general price inflation for 2005, as measured by the consumer price index, which reached 2.2%.
• The PMPRB also compares the prices of Canadian patented medicines to those of seven comparative countries. According to the report, the prices of Canadian patented medicines in 2005 were 8% below the corresponding median international price, and were on average below those in the United States, the U.K., Germany and Switzerland, but higher than those in Italy, France and Sweden.
• However, the PMPRB also carried out a separate analysis of patented prices in Canada and the chosen comparative countries, which used Purchasing Power Parities (PPP) to factor in the relative cost of living in each country. By this measure, Canadian prices for patented drugs were higher than everywhere except the United States.

R&D

• According to the Board, patentees reported total R&D expenditure of C$1.2 billion in 2005. This represented an increase of 5.5% from 2004, and bucked a recent trend of declining R&D expenditure, observed since 2003. Of this C$1.2 billion, just over C$1 billion was contributed by members of Rx&D, the industry association representing Canada’s research-based pharmaceutical companies.
• The PMPRB also reports on the R&D-to-sales ratio for patentees. This ratio increased from 8.3% last year to 8.7% in 2005.
• Additionally, the board reported that the R&D-to-sales ratio for Rx&D members rose to 8.8% of total sales revenue in 2005, up from 8.5% in 2004. This was the third successive year that this ratio has fallen below the 10% promised by Rx&D members as part of amendments to the patent act in 1987.

(For full details see: PMPRB Annual Report 2005)

Outlook and Implications:

With patented drugs in the Canadian market subject to stringent price controls, and with growth in the PMPI remaining more-or-less flat over the last decade, sales volume has been the primary growth driver for patented drugs. However, with utilisation rates also coming under significant pressure in the last five years, the market outlook for the industry is not positive. Utilisation rates have fallen from a high – as measured by the PMPRB’s Patented Medicine Quantity Index (PMQI) – of 17.8% in 2001 to just 4.5% in 2005,.

One of the main concerns among industry members is a continued perception that patent protection in Canada is weak by developed world standards. As part of the 1987 amendments to the patent act, Canada’s research-based pharmaceutical companies (Rx&D) promised that they would increase their annual R&D spending to 10% of their total sales revenues by 1996. However, despite investing a hefty C$1,040.2 million in R&D in 2005, the industry fell short of its commitment for the third year running, reaching only 8.8%. The PMPRB has no mandate to hold the pharmaceutical industry to this commitment. However, it is likely that the industry and the federal government will soon be in considerable conflict over the difficult balance between reducing prescription drug expenditure in the country and simultaneously encouraging increased innovation through R&D. The industry is currently pushing the Canadian federal government to implement recently announced amendments to the data protection act for pharmaceuticals in Canada. These amendments would provide eight years of data protection for pharmaceuticals, with an additional six months paediatric extension for drugs that have undergone clinical trials with children. As such, control of R&D expenditure remains one of the most powerful bargaining chips that the innovative pharmaceutical industry can bring to bear on the Canadian government, as it brings both significant revenue and high profile jobs to the economy.

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