By Shawn Whatley, August 12, 2025
The Canadian life sciences sector is tied to outdated assumptions. Though the economic landscape has shifted, Canada’s mindset has not. Today’s arguments continue to be animated by assumptions from yesterday which no longer apply.
Before COVID, the sector relied on global outsourcing and just-in-time inventory; before Trump, it hitched a ride on the coattails of American research and development (R&D) and focused primarily on US trade.
Debates around pharma R&D spending illustrate the problem. Government and industry figures differ, but both agree that Canada’s share is less than one per cent of global spending. If Canada were truly a global R&D leader, these arguments wouldn’t exist and companies would be competing to invest in Canada.
Many wish for a return to the old status quo, hoping tariffs will end and pandemics remain rare. But here’s the reality: even before these shocks, Canada was not a global life sciences innovator. Now, tariffs have forced an unwanted reckoning in a sector where thinking had grown rigid.
Moving forward requires action across multiple fronts. This includes tackling regulatory complexity, removing interprovincial trade barriers, crafting a national competitiveness strategy, fostering innovation capital, decoupling physical production from intangible assets, and leveraging international agreements like the WTO Pharma Agreement.
Regulatory complexity
If economic stability is paramount, then Trump deserves blame for destroying the status quo. But it begs the question: was the status quo worth defending?
Canada has long shielded its pharma industry from market competition. Identical prescription drugs cost 229 per cent more in America, on average, than they do in Canada (324 per cent more for brand name, and 39 per cent for unbranded generics). The Canadian pharmaceutical market was valued at US$51.56 billion as of 2024 out of a US$1.65 trillion global market. Despite being a signatory to the WTO global free-trade agreements on pharmaceuticals, we continue to use ersatz price controls, regulatory complexity, and intellectual property law to shackle foreign participation.
Canada uses a central purchasing approach to secure much lower prices than might otherwise be obtained on an open market. This drives American manufacturers to recover R&D costs from US customers. Now, Trump’s recent Most Favoured Nation policy seeks to invert this situation by fiat – mandating US patients see the lowest prices available in comparable markets, instead of the highest. It remains to be seen what this will do to drug availability.
Nigel Rawson and John Adams have written extensively on this. They argue that the Patented Medicine Prices Review Board (PMPRB) is a redundant regulatory body. Canada creates onerous barriers for drug companies having to comply with three separate agencies: the Canada Drug Agency (formerly Canadian Agency for Drugs and Technologies in Health), the pan-Canadian Pharmaceutical Alliance (pCPA), and the PMPRB. This approvals process creates delay and harms patients. We should work at reducing barriers to approval for new medicines.
A similar scenario exists for medical devices. The Canadian medical devices market was US$9.47 billion in 2022 of a US$485.3 billion market globally. But much like Canadian pharma, Canada imposes heavy regulation on medical devices.
For example, Canada’s Medical Devices Directorate regulates medical devices in Canada. Foreign manufacturers must comply with “safety, effectiveness, and quality requirements” in the Food and Drugs Act, as well as abide by Canada’s regulations. Canada has its own labelling and language requirements, and categorizes medical devices using the European four-class system (I, IIa, IIb, III, IV), unlike the US which uses a three-class approach. Medical device distributors and importers must have a Health Canada Medical Device Establishment License (MDEL) and an additional medical device licence if they are selling Class II-IV devices: a similar burden to obtaining FDA approval. Regulatory complexity has spawned its own industry to help organizations navigate the maze of regulations and approvals required to bring pharmaceuticals or devices to market. Emergo by UL, a global regulatory compliance consulting firm, notes that Health Canada “does not recognize approvals in other countries” and such approvals “do not give you significant advantages” in Health Canada’s approval process.
A recent study examined device regulation in the United States, European Union, India, and Africa. It highlighted opportunities such as innovation tax incentives, allowing testing in isolated “regulatory sandboxes,” public-private partnerships, and increased patient participation. Any of these measures could also help Canada.
Interprovincial trade
Interprovincial trade barriers have drawn renewed attention in recent months.
Trade between Canada’s provinces represented 27 per cent of GDP in 1981, but has dropped to 18 per cent. The 2017 Canadian Free Trade Agreement (CFTA) – meant to modernize internal trade – has been slow to tear down barriers.
A recent BDO Canada survey of 201 business leaders cited key obstacles: tariffs, taxation, logistics, inconsistent regulations, labour mobility issues, and infrastructure gaps. Provincial harmonization and regulatory alignment could ease trade and reduce barriers.
The Public Policy Forum noted that identifying barriers presents its own challenge. No province aims to erect “trade barriers” – they emerge because provincial regulations differ. That includes the pharmaceutical sector.
The regulatory landscape is fragmented. For example, a clinic in Ottawa wanting to expand into Quebec must navigate differing provincial regulations on delegation rules, licensing, who can perform procedures, and more. Regulatory bodies – like medical colleges, ministries, and public health authorities – vary by province and often conflict. Training and certification guidelines are unique to each province. Some regulations are federal (for example, Health Canada regulates and licences medical-grade lasers). But even so, local laws diverge and cover everything from equipment standards to advertising, zoning, and staff certification. It creates a maze of jurisdiction-specific rules that complicates cross-border expansion within Canada.
Nova Scotia’s new Free Trade and Mobility Within Canada Act aims to remove trade barriers with provinces who pass reciprocal legislation. Meanwhile, Ontario has signed free trade agreements with six others. These are steps forward, but real reform may require provinces to look inward and act unilaterally, rather than waiting for reciprocal commitments.
In 2019, Alberta unilaterally dropped 21 of its 27 CFTA trade exemptions. As economist Trevor Tombe noted, improving interprovincial trade will require leadership: a willingness to stand alone. Provinces could, for example, enable interprovincial mobility of professionals without waiting for national licensure. His research shows unilateral action still yields a large share of the benefits that reciprocal action could generate.
Competitiveness strategy
Canada performs above its weight on basic science research (5th globally of 169 countries) but lags in translating research into marketable products and services. The World Intellectual Property Organization places Canada 14th out of 133 countries on its Global Innovation Index. Canada is 8th in innovation inputs, but 20th in innovation outputs. This suggests an innovation gap.
Finding itself in a similar situation, the European Federation of Pharmaceutical Industries and Associations called for a broad-based competitiveness strategy aimed at transforming “ideas into innovation and innovation into products and services.”
Canada needs its own life sciences competitiveness strategy aimed at creating an environment that makes innovation easier and less costly: a vision of Canada as the best place to research, develop, and market new pharmaceuticals and medical devices. Government representatives could support the effort, but a coalition of industry leaders must be the driver.
This aligns with Canadian past successes in medical innovation as embodied in the discovery of insulin (1920s), cardiac pacemaker (1950s), and the polio vaccine (1950s).
Innovation capital
High-performing regions do not call for competitiveness strategies. They simply create the conditions for innovation. When the culture supports confidence, curiosity, and risk-taking, innovation emerges organically. Success reinforces itself, creating a virtuous feedback loop.
But innovation needs protection. Just as grass cannot grow if constantly trampled, new ideas cannot thrive when managers and regulators dominate the space. Early innovation is fragile. It needs to be sheltered from bureaucracy, not supervised.
Innovation demands a mindset unlike that of management or regulation. It requires persistence, risk tolerance, and a willingness to challenge norms. Innovators often ignore rules as they focus on creation, not compliance. In Canada, innovators must fight to exist in the narrow gaps left between bureaucratic structures. The opportunity cost is enormous.
Management happens after innovation. Innovation is like planting a new lawn; management is watering; regulation is trimming. You cannot fertilize before you grow; you cannot manage before you innovate. Management should clear space, not control it. Regulators should define broad, minimal boundaries: what chaos theory might call “edge conditions.” Too often, we regulate pre-emptively, stifling the very ideas we hope to scale.
Policy cannot create innovation, but it can create room for it. Before introducing regulation, we might ask: has existing regulation failed? Did harm occur? Is regulation the only option?
Ultimately, innovation is a human and cultural problem, not a technical one.
Decoupling physical production from value creation
One business strategy, developed during the 1990’s trade wars, involves decoupling physical production from intangible value: separating manufacturing costs from elements like R&D, branding, and regulatory compliance. In life sciences, intangible investments often far exceed the physical cost of goods.
Traditionally, these intangibles are bundled into the final product price, exposing them to double taxation through tariffs: first at origin and again upon transfer. Decoupling minimizes tariff exposure by reclassifying these intangible elements as separate services, not embedded costs.
However, this strategy introduces legal, tax, and compliance complexities, especially as customs authorities increasingly scrutinize such separations. Companies must carefully delineate products from services and apply arm’s-length pricing, often using subsidiaries or distinct legal entities to manage risk.
Despite these challenges, the core principle holds: what a company creates (intellectual, regulatory, and brand value) should be treated differently from what it manufactures. This separation can help avoid becoming collateral damage in ongoing or future trade conflicts.
Intellectual property
The WTO 1994 Pharma Agreement presents a unique opportunity vis-a-vis intellectual property (IP) and Canada’s patent law.
In 2010, Brazil found itself in a trade predicament with US cotton subsidies, similar to Canada’s current situation. The WTO was set to suspend protection for American IP on pharmaceuticals (and other items). This would have allowed Brazil to bypass foreign rights (and payments) on patents. Just the threat to American IP assets caused the US to reverse its position. IP represented US$127.39 billion in foreign income for the United States in 2022. Potential Canadian tariffs are minuscule by comparison.
Under Section 19 of the Canadian Patent Act, Canada can suspend patent rights held in the country by foreign firms. As McGill professor E. Richard Gould explains, Canada would need permission from the “Commissioner of Patents, a public servant in charge of the Canadian patent office.” In the event of an “economic war,” says Gould, Canada “needs to adopt politics that not only cost US companies dearly, but that also create opportunities for Canadian businesses.”
IP protection has formed a key element in both the former North American Free Trade Agreement (NAFTA) and the current Canada-United States-Mexico Agreement (CUSMA), which “dramatically restricted Canada’s generic drug industry.” Given that tariffs violate these agreements, we might assume they no longer hold. Using patent law to create a generic drug industry in Canada would dramatically reduce costs in Canada, at least in the short term (assuming industry light regulation). However, this might assume too much. Traditionally, Canada makes it more attractive for patent holders to sell to foreign buyers than scale ideas at home: another missed opportunity.
Conclusion
Trump’s America First policies present an opportunity for Canada to improve its regulatory environment, especially in life sciences. Longstanding challenges, once too costly to tackle, now demand action.
Canada must move beyond its protectionist stance on pharmaceuticals and medical devices. Provinces should adopt mutual recognition policies or unilaterally drop CFTA exemptions. A coordinated, pan-Canadian competitiveness strategy is needed to position the country as a global life sciences leader. This means rethinking innovation: how to foster it, protect it, and structure our systems to support it.
With 76 per cent of Canadian exports going to the United States in 2024, the bilateral trade relationship remains central. But to thrive, Canada must act as a smart, agile partner, not a passive one.
Blaming COVID or Trump for our current circumstance misses the point. Canadian innovation in life sciences lagged long before. The case for change is structural and long-term. Building a culture of innovation and competitiveness in life sciences takes time and must outlast today’s economic and political pressures.
Canada has tremendous opportunity to emerge stronger and more resilient. But this depends on our willingness to make bold, lasting changes. We’ve led before. The question now is whether we’ll lead again.
Dr. Shawn Whatley is a physician, past president of the Ontario Medical Association, and a senior fellow at the Macdonald-Laurier Institute.
