It is time to support the pharmaceutical industry

When I present my research, a question I often get asked is “When will Canada support the pharmaceutical industry?”  What do they mean? With sales of $41.3 billion in 2009 and net revenues of $1.3 billion, the industry would in all accounts appear healthy. Furthermore, employment in the pharmaceutical industry has increased by 12% in the last ten years. Where then do pharmaceutical companies need support?

Based on other questions I hear, what I think they really mean is: “when will Canadian formularies start paying for innovation?” The implication of this question is that by limiting which drugs provincial formularies cover, we are ignoring innovative products. But this begs the question what are “innovative products?”  If innovative products refer to all new pharmaceuticals then clearly we cannot afford all products at any price. As Andre Picard has suggested in the Globe and Mail “Every reasonable effort should be made to ensure a good life and a good death. But that does not mean mindlessly throwing huge sums of money at so-called miracle drugs.” Funding drugs that do not represent value for money simply leads to our inability to fund other technologies which provide greater benefits to the population as a whole. A definition of innovation must include some consideration of intrinsic value: i.e effectiveness and cost-effectiveness.  If it was the duty of a government to support home-grown industry by paying for products that were not truly innovative, we would have a stockpile of Blackberry Playbooks sitting in a Government warehouse in Ottawa.

Despite the above, I do favor support for the pharmaceutical industry but not by simply paying for non-innovative products.  My suggestions below are open for debate.

In the words of Sting “if you love somebody set them free”.  Industries that become too reliant on government subsidies and preferred supplier arrangements stagnate and decline.  One of the major barriers to innovation is the lack of incentives for industry to take strategic risks in developing genuinely innovative products. In the long run it would be of benefit both to Canada and to industry if we only rewarded those new products that are genuinely innovative – products that add value.

A major way of supporting the pharmaceutical industry is to make sure they compete on a level playing field.  Decisions on funding by formularies are often based on product listing agreements with manufacturers.  These agreements are typically confidential.  This can cause confusion to all concerned – the expert committees who make formulary recommendations do not know how to evaluate future products in the same therapeutic area and the drug companies don’t know how to market their future products as they are unaware of what they are competing against.  Therefore, to support the pharmaceutical industry, it would be worthwhile to make such product listing agreements open and transparent to all concerned.

Governments typically provide tax credits for expenditures on R&D for industries such as the pharmaceutical industry. With respect to tax credits for the pharmaceutical industry, according to a report from a major Canadian strategic management consulting firm, “No other country is as generous as Canada and, within Canada no province is as generous as Québec.” However, the tax credits are not targeted to developing the truly innovative products necessary for the pharmaceutical industry to prosper.  Therefore, to support the industry in a more constructive way, the system of tax credits could be revised.  To support the pharmaceutical industry, Canada could move away from indiscriminant tax credits and instead provide more focus on rewarding expenditures which have the aim of producing truly innovative products.

So in conclusion, it is time for Canada to step up and support the pharmaceutical industry.  The three strategies suggested are clear, unambiguous and, like certain pharmaceuticals, for some concerned a little hard to swallow!