Pharma has seen an R&D spending boom, but will it continue?

Date: March 2, 2023

The last few years have been a particularly turbulent time for the pharmaceutical sector, with the Covid-19 pandemic putting pressures on companies to develop vaccines and other medications.

While resources may have been stretched, the latest figures for research and development (R&D) spending show that the industry is seeing growth.

This benefits the health and well-being of Canadians through advancements in medical research, and has a major financial impact on the whole country. The R&D pharmaceutical sector contributed $15.9 billion to the Canadian economy in gross value added (GVA) in 2020, an increase of 5.8% from the $15.0 billion generated in 2019. Investment in R&D also encourages job growth, with employment increasing by 5.2% to nearly 108,000 full-time jobs.

Where is this innovation coming from?

More than half of these contributions could be directly attributed to members of Innovative Medicines Canada (IMC), an association representing Canada’s innovative R&D pharmaceutical sector.

There are three main areas of R&D in this sector, including: pharmaceutical and medicine manufacturers; pharmaceuticals and pharmacy supplies merchant wholesalers; and R&D performers in the physical, engineering and life sciences.

The figures show that nearly $13.9 billion (87.4%) of the total GVA contributed by the sector was generated in Ontario ($8.7 billion) and Quebec ($5.2 billion).

How is this R&D funded?

One of the primary sources of investment the Government of Canada gives to pharmaceutical organizations is the Scientific Research & Experimental Development (SR&ED) program. Since the eligibility of this tax incentive relies on further technical knowledge, overcoming scientific challenges or creating advancements in the sector, pharmacology is a prime area for SR&ED activity.

The figures show that in 2020, businesses in the pharmaceutical R&D sector claimed $986 million in refundable tax credits under the SR&ED program. Interestingly, 64% of this was spent on in-house R&D and the remainder was outsourced to other organizations within Canada. There is often a misconception that work done by contractors and outsourced R&D companies isn’t eligible for SR&ED as it is the responsibility of those companies, but this isn’t always the case and it’s worth keeping records of this in case it is eligible.

What next for R&D spending

While economic challenges continue to be a factor in determining how much pharmaceutical companies are willing to invest in R&D, it is anticipated that levels will remain stable, or even continue to grow. The SR&ED program remains one of the most generous tax credit schemes in the world when it comes to funding innovation, and a large proportion of the overall amount that companies invest in R&D is funded by it.

The pharmaceutical sector is doing more and more work that qualifies for support from SR&ED, but the challenge of raising awareness of the benefits of these tax incentives continues.

If you are a company in the pharmaceutical sector and want to know what tax incentives are available, please contact Richard Hoy, president of specialist tax consultancy Catax Canada, at

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