Time to decide: Do we want foreign R&D or not?

One measure of a nation’s governance and institutions is its attractiveness to foreign investment. Foreign investment increases productive capacity and employment and entails valuable technology transfer and training — all capital investment, does, to varying degrees. But foreign investment, like other capital investment in Canada, has plummeted for years.

Foreign investment requires trustworthiness. Investors want stable and welcoming jurisdictions. Put yourself in the place of an investment manager. You are entrusted with other people’s funds, for which you bear exacting legal responsibilities, and you are considering investing them in a foreign jurisdiction with unfamiliar laws and traditions where the investment, if you make it, will be at the mercy of politicians who are answerable neither politically nor, often, legally to the funds’ owners. Governments that aren’t alert to the consequences of their own actions, whether intended or unintended, can easily scare away such investors, as Canada, determinedly, does.

Technology-based companies should be particularly welcome investors because their operations build up a nation’s knowledge and skill bases. An instructive example is the life sciences sector, in which the usual advantages of investment are augmented by longer lives and better and cheaper health care. Prime Minister Trudeau’s mandate letters to his ministers of innovation, science and industry and health instruct them to work together to advance his government’s biomanufacturing and life sciences strategy, which is intended to rebuild a domestic bio-manufacturing sector that has been declining for decades. But the good intentions of these mandate letters are thinner than the paper they were printed on. They are performative, not substantial, because Ottawa’s behaviour and policies make it clear it doesn’t want investment at all.

Intellectual property rights in Canada constantly lag behind other countries that are better at innovation. Improvements have been slow and grudging. Protection for pharmaceutical data in Canada is only eight years, well short of Europe’s 10 years (including market exclusivity) for small molecule drugs and far short of the advised period of 12 years for biologics data, which was adopted by the much more innovative United States. The long-lived “promise doctrine,” a court-created principle of patent construction that imposed burdensome obligations to prove the utility of an invention beyond those set out in the Patent Act, invalidated many very valuable Canadian drug patents for years, until, after a NAFTA challenge, the Supreme Court finally invalidated it.

In addition to these legal impediments, and the government’s often-demonstrated hostility to the industry, biopharmaceutical innovators face a regulatory gantlet in the form of “health technology assessments” performed by the Canadian Agency for Drugs and Technologies in Health and price negotiations by the pan-Canadian Pharmaceutical Alliance. These non-public, non-transparent and non-accountable organizations have been aligning their processes for some years, allegedly to improve access for Canadians. In reality this alignment seems aimed less at health care improvement and more at budget management by delaying new medicines from being brought to Canada so as to reduce their costs by making the period during which buyers would pay patent-protected prices effectively shorter — running the clock on the patent, as it were.

To these barriers, the federal government wants to add new regulations to the already confiscatory powers of the Patented Medicine Prices Review Board (PMPRB), whose originally intended role was to prevent drug patents from being abused but which now regards itself as a profit regulator. The new regulations are expected to severely reduce prescription medicine prices, which will further delay or deny Canadian patients’ access to novel medicines. Just the threat of these regulations has been enough for pharmaceutical executives to re-think their plans to bring new medicines to Canada. Their enactment will make the country permanently less attractive as a place to invest in infrastructure and R&D and to launch new medicines.

In spite of all this, industry opponents argue that pharmaceutical companies do not do enough R&D in Canada. But why would they?

The argument that investment is deficient stems from a 1993 letter to the federal government from proprietary drug company representatives saying that, if certain necessary improvements to Canada’s intellectual property laws were made, its members would invest 10 per cent of their Canadian revenues in research and development in Canada. Since then, the methodology for accounting for such investment has shifted, and R&D structures have changed dramatically. Opponents, including the PMPRB, suggest that the current level of investment is less than four per cent of revenues. Statistics Canada puts it as high as 9.5 per cent; a more inclusive system would put it higher still. But squabbling over who’s right is an empty argument, pointless penny-pinching. What we need is not a primitive economy that extorts investment in exchange for political favours, but an attractive investment regime that would make Canada a welcoming host for innovation and economic growth — things to which Ottawa is, alas, resolutely hostile.

Nigel Rawson is an independent researcher and an affiliate scholar with the Canadian Health Policy Institute. Richard Owens is a lawyer and Senior Munk Fellow with the Macdonald-Laurier Institute.

One measure of a nation’s governance and institutions is its attractiveness to foreign investment. Foreign investment increases productive capacity and employment and entails valuable technology transfer and training — all capital investment, does, to varying degrees. But foreign investment, like other capital investment in Canada, has plummeted for years.

Foreign investment requires trustworthiness. Investors want stable and welcoming jurisdictions. Put yourself in the place of an investment manager. You are entrusted with other people’s funds, for which you bear exacting legal responsibilities, and you are considering investing them in a foreign jurisdiction with unfamiliar laws and traditions where the investment, if you make it, will be at the mercy of politicians who are answerable neither politically nor, often, legally to the funds’ owners. Governments that aren’t alert to the consequences of their own actions, whether intended or unintended, can easily scare away such investors, as Canada, determinedly, does.

Technology-based companies should be particularly welcome investors because their operations build up a nation’s knowledge and skill bases. An instructive example is the life sciences sector, in which the usual advantages of investment are augmented by longer lives and better and cheaper health care. Prime Minister Trudeau’s mandate letters to his ministers of innovation, science and industry and health instruct them to work together to advance his government’s biomanufacturing and life sciences strategy, which is intended to rebuild a domestic bio-manufacturing sector that has been declining for decades. But the good intentions of these mandate letters are thinner than the paper they were printed on. They are performative, not substantial, because Ottawa’s behaviour and policies make it clear it doesn’t want investment at all.

Intellectual property rights in Canada constantly lag behind other countries that are better at innovation. Improvements have been slow and grudging. Protection for pharmaceutical data in Canada is only eight years, well short of Europe’s 10 years (including market exclusivity) for small molecule drugs and far short of the advised period of 12 years for biologics data, which was adopted by the much more innovative United States. The long-lived “promise doctrine,” a court-created principle of patent construction that imposed burdensome obligations to prove the utility of an invention beyond those set out in the Patent Act, invalidated many very valuable Canadian drug patents for years, until, after a NAFTA challenge, the Supreme Court finally invalidated it.

In addition to these legal impediments, and the government’s often-demonstrated hostility to the industry, biopharmaceutical innovators face a regulatory gantlet in the form of “health technology assessments” performed by the Canadian Agency for Drugs and Technologies in Health and price negotiations by the pan-Canadian Pharmaceutical Alliance. These non-public, non-transparent and non-accountable organizations have been aligning their processes for some years, allegedly to improve access for Canadians. In reality this alignment seems aimed less at health care improvement and more at budget management by delaying new medicines from being brought to Canada so as to reduce their costs by making the period during which buyers would pay patent-protected prices effectively shorter — running the clock on the patent, as it were.

To these barriers, the federal government wants to add new regulations to the already confiscatory powers of the Patented Medicine Prices Review Board (PMPRB), whose originally intended role was to prevent drug patents from being abused but which now regards itself as a profit regulator. The new regulations are expected to severely reduce prescription medicine prices, which will further delay or deny Canadian patients’ access to novel medicines. Just the threat of these regulations has been enough for pharmaceutical executives to re-think their plans to bring new medicines to Canada. Their enactment will make the country permanently less attractive as a place to invest in infrastructure and R&D and to launch new medicines.

In spite of all this, industry opponents argue that pharmaceutical companies do not do enough R&D in Canada. But why would they?

The argument that investment is deficient stems from a 1993 letter to the federal government from proprietary drug company representatives saying that, if certain necessary improvements to Canada’s intellectual property laws were made, its members would invest 10 per cent of their Canadian revenues in research and development in Canada. Since then, the methodology for accounting for such investment has shifted, and R&D structures have changed dramatically. Opponents, including the PMPRB, suggest that the current level of investment is less than four per cent of revenues. Statistics Canada puts it as high as 9.5 per cent; a more inclusive system would put it higher still. But squabbling over who’s right is an empty argument, pointless penny-pinching. What we need is not a primitive economy that extorts investment in exchange for political favours, but an attractive investment regime that would make Canada a welcoming host for innovation and economic growth — things to which Ottawa is, alas, resolutely hostile.

Nigel Rawson is an independent researcher and an affiliate scholar with the Canadian Health Policy Institute. Richard Owens is a lawyer and Senior Munk Fellow with the Macdonald-Laurier Institute.