Canada Pharmaceuticals & Healthcare Report Q2 2010

In BMI's Business Environment Rankings for Q209, Canada is once again placed third out of the 10 markets surveyed in the Americas region, having been overtaken by Puerto Rico in Q408. Canada is ranked joint 9th in global terms, alongside South Korea, despite having received a slightly lower score than in the previous quarter. Overall, the value of the Canadian CAD26bn (US$25bn) market at consumer prices is expected to rise to just CAD29.9bn (US$24.1bn) in 2013, implying a low compound annual growth rate (CAGR) of 2.8%. The worsening of its position is mainly a function of the slowdown of the growth of its pharmaceutical market, which is negatively impacted by patent expirations and government driven cut-backs on drug spending. Additionally, regulatory shortcomings have in the past been responsible for no-launches of some innovative medicines, with approvals experiencing considerable delays. Canada spent CAD15.7 (US$15.1bn) on patented drugs in 2008, as pharmaceutical products worth US$1.2bn lost patent protection in 2007, around four times the value of the expected patent expiries in 2008 and 2009. According to IMS Health, the number of new molecular entities (NMEs) launched in Canada in 2007 accounted for less that 0.3% of total sales. Moreover, the patented medicine price index revealed that manufacturers' prices fell by 0.2% in 2006 after four years of consecutive growth. However, BMI believes that the proposed system of progressive licensing that shifts the focus from pre-market review to ongoing post-market evaluations should improve the position of patented drugs. If implemented, the changes should help remove some of the regulatory hurdles for experimental new drugs, although critics claim that in effect consumers will be used like 'guinea pigs'. In economic terms, Canada is also experiencing a marked slowdown, with BMI pencilling in a 1.4% real GDP contraction in 2009. The key to Canada's economic health is the US, and on that front, we are seeing increasing downside risks, which in turn put our Canadian forecasts in jeopardy. Although we have not seen the same signs of economic decline in Canada as we have recognised in the US, in both countries, economic indicators are pointing toward a potentially prolonged and deep recession. We are currently forecasting a mild rebound in H209 but Canada will find it difficult to avoid a negative full-year figure. This outlook will have clear implications for the Canadian healthcare market, given that public funding accounts for some 70% of the total expenditure. On a positive note for medical devices manufacturers, in February 2009, the Government of Ontario, extended a US$29.6mn grant to Agfa HealthCare from its Next Generation of Jobs Fund. The fund aims to both support existing jobs and create some 100 new positions. However, BMI notes that nearly 87% of all research and development (R&D) jobs are already located in Quebec and Ontario, with the two provinces therefore highly vulnerable to economic downturn. Additionally, the strength of the Canadian dollar against the US dollar has caused problems for the export-focused manufacturing industry, which has also had to contend with the emergence of lower-cost manufacturing bases (such as Mexico), making investment in hi-tech medical devices all the more necessary.