The effect of pharmaceutical patent term length on research and development and drug expenditures in Canada

Abstract

While pharmaceutical patent terms have increased in Canada, increases in patented drug spending have been mitigated by price controls and retrenchment of public prescription drug subsidy programs. We estimate the net effects of these offsetting policies on domestic pharmaceutical R&D expenditures and also provide an upper-bound estimate on the effects of these policies on Canadian pharmaceutical spending over the period 1988-2002. We estimate that R&D spending increased by $4.4 billion (1997 dollars). Drug spending increased by $3.9 billion at most and, quite likely, by much less. Cutbacks to public drug subsidies and the introduction of price controls likely mitigated drug spending growth. In cost-benefit terms, we suspect that the patent extension policies have been beneficial to Canada.

FIGURE 1.

Pharmaceutical and medicine sector share of total industrial R&D expenditures, Canada, 1972–2002

FIGURE 2.

Ratio of R&D expenditures to sales revenue by sector, Canada, 1975–2001

FIGURE 3.

Nominal R&D expenditure in pharmaceutical and medicine vs. motor vehicle and parts sectors, Canada, 1972–2002

FIGURE 4.

Growth in real per capita retail prescription drug expenditures since 1976, total and publicly funded component, with 95% confidence intervals

FIGURE 5.

Growth in real per capita total retail prescription drug expenditures since 1976, adjusted for changes in time-varying covariates, with 95% confidence intervals

FIGURE 6.

Year-over-year growth rates in real drug price indices 1982–2002, Canadian patented drugs, all Canadian drugs and all US drugs

FIGURE 7.

Nominal per capita prescription drug expenditures in the United States and Canada, 1975–2002