Big Pharma eyes up Pharmac in trade talks

by andrew.mcnulty / 11 June, 2011
The future of Pharmac is on the table in trade talks with the US, where big pharmaceutical companies are pushing for changes.
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Pharmac used to be as popular as vermin. Think back to Herceptin and the cancer-stricken women who protested against Pharmac for denying them subsidised year-long courses of the drug and perhaps another chance at life.

Back then, Pharmac was treating New Zealand women like “lab rats”, according to the Breast Cancer Aotearoa Coalition. It was offering treatment that was “unproven, unsafe and cheap”, said National MP Dr Jackie Blue, a specialist in the area of breast cancer, by funding a nine-week but not a 12-month course of Herceptin. It was subjecting New Zealand women to what might turn out to be an “unfortunate experiment”, said drug company Roche. In the end, National made it an election issue, and with the change of government in 2008, Pharmac was told to fund year-long courses of the drug for a wider group of breast cancer patients.

But a funny thing is happening. Pharmac is being transformed from pest to national icon. Defenders are rushing to its aid as it becomes clear Pharmac is a fat, juicy prize being eyed up by US pharmaceutical companies in the Trans-Pacific Partnership free-trade talks with the US and seven other nations.

Economist Gareth Morgan, businessman Lloyd Morrison and NZ Herald leader writers have lined up to defend the country’s famously stingy drug-buying agency. Meanwhile, the Greens and Labour leader Phil Goff are demanding Pharmac be removed from the table in the trade talks. Medical professionals, too, are lauding the hard choices Pharmac makes to provide the public with largely free medicines.

Exactly what changes to Pharmac the US might seek from New Zealand in the trade talks is not known – the talks remain secret. On June 20, when talks resume in Vietnam, the US Government is reportedly due to table its full intellectual property claims. But what is becoming clear is how fervently the little drug-buying agency at the bottom of the world is resented by the big pharmaceutical companies.

In the US, the industry has singled out Pharmac in intense lobbying of the US Government ahead of the resumption of talks. A position paper from the US pharmaceutical industry cited Pharmac as “an egregious example”, “using coercive negotiating tactics such as demanding price reductions on certain products in exchange for listing newer products, and waiting out patent terms before listing medicines”.

The industry is instead calling for “science-based decision-making”. It also wants opportunities for manufacturers to have input into Pharmac’s decision-making, and a right of appeal to an independent court or body. More than a quarter of US senators have signed a letter to President Barack Obama calling for a crackdown on national drug-buying agencies – a clear reference to Pharmac.

Just back in New Zealand from the last round of talks in Montana, Trade Minister Tim Groser says Pharmac has already been under negotiation. However, he would not reveal details. “I’m not personally involved in Pharmac negotiations at all at this stage. We’ll wait and see whether it filters up to a political level, in which case I might be.”

But he says New Zealand did not accept Pharmac raised any issues of intellectual property, as the pharmaceutical industry maintained. “In my view, it’s not a matter of intellectual property at all; it’s about access to subsidies.”

Nor was Pharmac anti-free trade. “In New Zealand, there’s no market-access barrier provided that the pharmaceutical products have got the proper expert approval to be sold as safe drugs under standard procedures. People go out and buy them. The issue here is access to the subsidies.”

Just how strongly the New Zealand Government will defend Pharmac is not yet clear. According to Groser, the Government considers Pharmac “an outstanding public institution”. “But things move on, opportunities may arise, there may be some ideas that we can discuss, but the fundamentals, no.” He would not outline what elements of Pharmac the Government considered to be the fundamentals.

Is he prepared to agree to any changes in the way Pharmac is structured or the way it makes its decisions? “No, I’ve got nothing to add to what I said.” So there are some details of Pharmac that might change? “I’ve got nothing to add to what I said.”

Why can’t Pharmac be removed from the negotiating table? “Because if you remove one element from the table, then the other side can remove other elements, so we’ll work through all these issues in a professional manner.”

Are we going to end up paying more for our drugs? “Look, I think we’ve gone as far as we can in this conversation.”

Groser, a former diplomat, says he isn’t concerned by the prospect of tough bargaining on this issue. “I’ve negotiated, when I was principal economic adviser for the Ministry of Foreign Affairs, with the Americans on this before and we’re not scared of them.”

Tim Groser/photo Richard Robinson/APN


The big pharmaceutical companies’ antipathy to Pharmac stretches back to the drug-buying ­agency’s founding in 1993, a time when the debt-ridden National Government was intent on slashing costs. Until that time decisions on drug buying had been made primarily on safety and therapeutic value, with little consideration of cost, leading to a blowout in spending. The Government’s medicine bill was rising by up to 20% a year, squeezing other areas of health spending.

Since then, Pharmac has stuck stringently to its budget and has developed a reputation as the toughest government bargainer in the world on drug prices, with heavy use of generics, competitive tendering, a sceptical attitude to pharmaceutical company claims for their products, and slow adoption of new drugs.

With all Western nations concerned by spiralling drug costs, interest is growing in the Pharmac model. A 2006 Canadian study of 17 top-selling drugs in Australia, Canada, the UK, New Zealand and the US found New Zealand was the most restrictive of the five, with Pharmac not subsidising half the 17 drugs. But New Zealand also paid the lowest medicine prices – half the cost, on average, of the other four countries. The medicines here were on average a quarter of the cost in the free-market US.

The push from the pharmaceuticals lobby against Pharmac has been building for a long time.

A 2004 US Embassy cable said, “US pharmaceutical companies consider New Zealand to be hostile ground”, and that the companies were “unable to meet their sales and profit targets”.

The cable from then Ambassador Charles Swindells, released by WikiLeaks, said the industry had given up trying to get the Government to change its Pharmac policies. Instead, “the drug industry is taking another tack: reaching out to patient groups with information designed to bolster their demands for cutting-edge drugs not already covered by government subsidy”. The embassy would be “working with the industry to identify speakers and engage in other public diplomacy efforts that could help educate New Zealanders on the benefits of gaining access to a wider range of effective pharmaceuticals”. Cue the Herceptin wars.

Now the long-simmering feud between Pharmac and the big pharmaceutical companies has reached the arena of trade talks. And in New Zealand at least, Pharmac is getting more widespread public support than it has ever enjoyed before.
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