The following is a special comment from the CEO of Specialised Therapeutics Australia, Carlo Montagner.
From 1 April this year, pharmaceutical companies across the country will bear the impact of the Federal Government’s $1.5 billion Pharmaceutical Benefits Scheme cost-saving agenda.
From this day, branded medicines that have been listed on the Pharmaceutical Benefits Scheme for five years or more will take a mandatory 5% price cut.
Basically, it means the Government will pay pharma companies 5% less than they do now for these currently listed and Government reimbursed medicines.
Unfortunately, taxpayers won’t see any difference to the price of their drugs at the pharmacy counter.
This decision by the Federal Government to reward itself with a mandatory discount will affect dozens of branded medicines and most small and large pharmaceutical companies in the country.
While positive for the Commonwealth drug budget, these forced upon price changes will pose an unprecedented commercial challenge for the pharmaceutical industry and in particular, for innovator pharma companies.
The pharma industry invests over $1 billion every year in health and medical research, exports billions in manufactured goods and indirectly employs around 20,000 Australians.
Industry media reports suggest that some Australian pharma companies have been forced to downsize as a result of this mandatory price cut.
That’s because these companies are not only having to find ways to offset these price cuts - which are expected to save the Federal Government $3.7 billion over five years – but to mitigate the longer term consequences of this decision and the ongoing costs of innovating.
This is the first forced price cut introduced by the Government, but we don’t know if it will be the last.
This is the great unknown and it brings instability. If further cuts are imposed, then there is a real possibility of pharma companies removing drugs from the PBS because it simply won’t be commercially viable for them to keep them there.
If this happens, cutting edge, life saving drug therapies currently listed and being used to treat Australian patients may become unavailable – and this is a great pity for our community.
There is little doubt PBS pricing changes WILL impact innovation. Trials of new drugs are costly and pharma companies will simply not have the same commercial incentive to include Australian sites in global studies of new drugs and technologies.
This is disappointing. Not only does it deny patients the opportunity to receive innovative drugs, potentially life changing therapies, it also fails to recognise the massive economic boost these trials provide to Australia in terms of funding and employment at trial hospitals and other academic and research institutions. These programs create employment for scientists and researchers and contribute to our ‘knowledge economy’.
Further, the market prices able to be achieved with new therapies currently in development will be benchmarked against reduced PBS prices from 1 April.
Effectively, it will be more difficult for new innovator drugs to achieve Government reimbursement because the innovation-driven development companies will not be able to match the eroded price or their new therapy will need to achieve almost impossible clinical improvements to justify the same price achievable elsewhere in the world.
These changes are a blow to innovators and appear to dismiss the many years of lab research, clinical trials and dogged commercial persistence required by academic researchers, small biotechs and pharma companies to bring novel therapies to market.
The community should also be aware that for those at the commercial coal face – the pharma companies - the opportunity to increase prices once a drug has been listed on the PBS is non-existent.
We wear the costs of any manufacturing price rises or any significant currency devaluations from when a drug is listed, unlike private health insurers for example who are accustomed to achieving in excess of CPI price increases each year.
Pharmaceutical companies like ours need incentives to invest in new therapies, contribute to local and international clinical trials and also, to pay the substantial upfront licensing, acquisition and regulatory fees required to provide cutting edge therapies to the community.
The reality is that to remain competitive and keep innovating, the pharmaceutical industry must be incentivised to continue investing in Australia.
For every innovative drug that makes it to market and changes lives, there are hundreds of others that fail to reach the market– even in some cases, after millions of dollars have been spent in development. This is not a waste – many a brilliant discovery was made on the back of a litany of supposed ‘failures’.
I ask the Government to remember its commitment to innovation. A truly innovative economy and pharmaceutical industry requires the financial ballast to achieve.
