Industry groups warn PBS changes dangerous for biotech

Widely-touted changes to Australia's Pharmaceutical Benefits Scheme (PBS) could cost the biotech industry more than AUD$300 million in investment annually, according to AusBiotech.

In February, Federal cabinet will consider PBS reform recommendations from an inter-departmental working committee with changes likely to be implemented in the May budget. The recommendations promote competition among generic drug manufacturers once the patent on a branded medication expires.

Reforms to the PBS could save the government around $830 million. But industry group Medicines Australia, whose membership includes the local divisions of some of the world's largest drug firms, and AusBiotech have warned that the savings could come at a cost, and will deny patients access to innovative medicines.

"Medicines Australia believes its members at present invest around $300 million a year in local research and development. It doesn't require a lot of thought to understand that if you're pulling out $830 million, it's highly likely they are going to save some costs in the $300 million spend on R&D," said AusBiotech CEO Anna Lavelle.

Tender system

The government's interdepartmental committee is said to be considering four options. The two preferred options include a tender system, where generic manufacturers would compete to provide the lowest cost generic to the government once the patent on a branded medicine expires. Currently, branded and generic medicines receive the same price if they can demonstrate they have the same health outcome. Both options would see the lowest priced drug gaining an exclusive period of co-payment discount to patients. Co-payment is the amount patients contribute towards the cost of drugs on the PBS.

It is believed that under the first scenario, the price of other drugs in the same therapeutic group -- including products that are still on patent and may have advantages or differences to the tender product -- would be forced to reduce their price to that of the cheapest drug. However, only the winning manufacturer would be allowed to offer discounts to patients for the three-year tender period. This option is forecast to save the government up to $830 million a year and is believed to be favoured by the Health Department.

Under the second scenario, other drugs in the therapeutic group would not have to drop their price. However, after a six-month period in which the winning manufacturer alone would be able to offer patients a discount, other manufacturers that did drop their price would also be able to offer a patient discount. It is understood that the Department of Industry favours this scenario and it is expected to save the government up to $370 million.

Incentive

The major issue with both scenarios, according to AusBiotech, is the connection between generic medicines and innovative medicines. When the price of a generic is decreased, the price of innovative medicines is dragged down with it.

"Generic medicines obviously have their place," said Lavelle. "But I think it's quite simple to see that if you're copying drugs to off patent, they can be lucrative for the company copying those drugs, but there needs to be an incentive to invest in innovation," said Lavelle.

In 1993 the New Zealand government reformed its PBS equivalent along similar lines to the Australian scenarios. Within a year, Pfizer announced the cancellation of a 10-year NZ$40 million (AUD$36 million) grant to an Auckland University biomedical research program, saying that it made no sense to fund research in a country where the public was denied access to innovative medicines.

Lavelle warned that the $40 million loss came at a saving of $18 million to the New Zealand government -- similar changes in Australia, she said, could see companies that are said to invest in Australian biotech abandon Australia the way they have abandoned New Zealand. "The government must look at the overall cost benefit of any reforms to the PBS -- otherwise we risk going the way of New Zealand with the loss of its biotech industry and the impact that will have on Australians having access to some of the world's best and newest drugs and treatments," she said.

Meddling

Medicines Australia CEO Kieran Schneemann also recognises the dangers of going down the New Zealand path. "In New Zealand, successive governments have thoughtlessly meddled with a system to deliver short-term budgetary gains but long-term negatives for patients," he said in a statement. "We do not want to go down a path where doctors can only prescribe one potentially inappropriate medicine for a patient. Neither do New Zealanders -- after a decade of failure, its government is now reviewing that approach."

Government measures should take into account "the bigger picture" of encouraging the right climate for innovation and investment, according to Medicines Australia. "We all want a sustainable PBS as the population ages. But patient health cannot be compromised, and Australia should not give up its place among the best in the world as a home for biotech and clinical trials," said Schneemann.

GlaxoSmithKline's Australian director of government and corporate affairs, Alex Grosman, said that the global pharmaceutical company is "obviously quite concerned" about possible changes to the PBS scheme.

"Depending on some of the options, if they were to be implemented, we'd think it would have an adverse effect on research and development," said Grosman. "There'd be potentially a lot fewer clinical trials done in Australia and it would be just that much harder to go back to head office and to say Australia's a good place to do R&D, when what will be central to people's mind is a very tough reimbursement environment."

Downsizing

There are 1500 Glaxo employees in Australia, and just 20 in NZ, Grosman said, "whereas when I joined three and a half years ago we would have had nearly 100." Grosman said Glaxo's decision to downsize in New Zealand was directly related to the New Zealand government's policy. "There's no real research and development done in New Zealand now, and I suppose we cut down on marketing and so on, in many areas. You end up cutting your costs to fit the market," he said. Ironically, Glaxo was originally a New Zealand company before merging into Glaxo Wellcome in 1995 and most recently into GlaxoSmithKline in 2000.

Grosman said Glaxo was working closely with Medicines Australia, of which it is a member, and that the company spoke to Federal health minister Tony Abbott when he visited its Boronia facility last week to open the production line for the anti-flu drug Relenza.

"At the end of the day, we're a company about innovation, and we obviously also have a generic portfolio," said Grosman. "It's about creating the headroom for bringing innovative products to market -- that's the approach we prefer. Whatever option is considered, we'd probably like to see more consultation and a structured implementation."

Discount

Lavelle said Medicines Australia had suggested to the government that it should consider an option in which manufacturers offered a price discount to the government if the sales volume of their products increased, providing a direct correlation between the manufacturer's profit and a discount flowing back to government. "That option is not as lucrative as the tendering option for the lowest price, which is what is being considered at the moment," said Lavelle. "The savings are touted to be around the $120 million mark, if they went down that road."

AusBiotech urged the government to be cautious and encouraged industry consultation before making any changes to the PBS.

"All governments -- federal and state -- are expressing great interest in biotechnology, and great interest in innovation and maintaining Australia as an innovative country," said Lavelle. "This particular move may in fact mitigate against that national strategy and that's another thing that needs to be carefully considered.

"We would like to see some consultation with industry. We were present at a meeting last year with [federal industry minister] Macfarlane and [health minister] Abbott and also Medicines Australia and GMA, where the issue of reviewing the PBS was raised. Our understanding was that there would be some further engagement with industry before the decision is taken in February.

"To date, AusBiotech has not been invited to express a view or be involved in any consultative process with the department, and we have written to Abbott and to Macfarlane, requesting that consultation," said Lavelle.

AMA warning

The Australian Medical Association has also urged the government not to pursue restrictive reforms of the PBS, but for different reasons to Medicines Australia. AMA president Mukesh Haikerwal said in a statement that: "A decision to prescribe a generic or change to a generic -- disregarding relevant clinical considerations -- can be dangerous and irresponsible.

"In Australia, we must continue to put the best interests of the patient ahead of cost cutting that lowers quality and integrity of our PBS."