R&D Expenditures by Pharmaceutical Patentees

Research and development (R&D) expenditure in Canada has been on the decline for the past decade from its peak in 2003 due to various factors. While Canada has a highly educated workforce with advanced research centers, countries such as China and India have implemented significant incentives for companies to conduct research and development in their countries. For example, China implemented a super deduction incentive in 2008, which has been progressively expanded. According to Ernst & Young, mainland China’s R&D incentives include a 150% R&D super-deduction as well as a number of other programs which allow qualifying corporations to realize a flat 15% corporate tax rate. This has encouraged large, global pharmaceutical companies to move these operations out of Canada.

Another key development is recently proposed regulatory reform for a national pharmacare plan introduced in late 2017 by the government that could shift the country to buy less expensive, generic alternative drugs. Due to the uncertainty in the specifics of this plan and whether it will even be implemented, brand-name drug companies have become more hesitant to increase research activity in Canada.

Moving into 2020, the COVID-19 (coronavirus) pandemic shifted the focus of many pharmaceutical companies to primarily focus on research for antivirals, diagnostics and vaccines for COVID-19. The Canadian government has also pledged over $300.0 million in research money. Despite the pandemic, R&D expenditure by pharmaceutical patentees has decreased over the five years to 2025, mainly due to the increased offshoring in research. Interest rate hikes and economic uncertainty have resulted in less investment in pharmaceuticals. Expenditure is forecast to decline an annualized 3.3% to $666.7 million over the five years to 2025.