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Challenges for Australia's Bio/Nanopharma Policies: trade deals, public goods and reference pricing in sustainable industrial renewal

Challenges for Australia's Bio/Nanopharma Policies: trade deals, public goods and reference... Industrial renewal in the bio/nanopharma sector is important for the long term strength of the Australian economy and for the health of its citizens. A variety of factors, however, may have caused inadequate attention to focus on systematically promoting domestic generic and small biotechnology manufacturers in Australian health policy. Despite recent clarifications of 'springboarding' capacity in intellectual property legislation, federal government requirements for specific generic price reductions on market entry and the potential erosion of reference pricing through new F1 and F2 categories for the purposes of Pharmaceutical Benefits Scheme (PBS) assessments, do not appear to be coherently designed to sustainably position this industry sector in 'biologics,' nanotherapeutics and pharmacogenetics. There also appears to have been little attention paid in this context to policies fostering industry sustainability and public affordability (as encouraged by the National Medicines Policy). One notable example includes that failure to consider facilitating mutual exchanges on regulatory assessment of health technology safety and cost-effectiveness (including reference pricing) in the context of ongoing free trade negotiations between Australia and China (the latter soon to possess the world's largest generic pharmaceutical manufacturing capacity). The importance of a thriving Australian domestic generic pharmaceutical and bio/nano tech industry in terms of biosecurity, similarly appears to have been given insufficient policy attention. Reasons for such policy oversights may relate to increasing interrelationships between generic and 'brand-name' manufacturers and the scale of investment required for the Australian generics and bio/nano technology sector to be a significant driver of local production. It might also result from singularly effective lobbying pressure exerted by Medicines Australia, the 'brand-name' pharmaceutical industry association, utilising controversial interpretations of reward of pharmaceutical 'innovation' provisions in the Australia-US Free Trade Agreement (AUSFTA) through the policy-development mechanisms of the AUSFTA Medicines Working Group and most recently an Innovative Medicines Working Group with the Department of Health and Ageing. This paper critically analyses such arguments in the context of emerging challenges for sustainable industrial renewal in Australia's bio/nanopharma sector. Page 1 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 and regulatory reasons, such estimates now likely to be Background Australian pharmaceutical exports were A$1.77 billion in more conservatively revised. 1999–2000 and approximately 14,000 people were employed in the industry. By 2003, Australia was export- Under the Pharmaceutical Benefits Scheme (PBS) cost- ing $1.96 billion in pharmaceutical products, but import- effectiveness reimbursement system, as it operated ing $4.4 billion (of which 45% derived from firms of US between the late 1990's and 2004, Australian generic corporate nationality). None of the top ten pharmaceuti- pharmaceutical firms competed not on PBS price, but for cal firms (by sales volume) was Australian [1]. It is deals with retail pharmacists (by offering convenient sup- unlikely in the foreseeable future, chiefly because of the ply arrangements and, most significantly, large discounts, scale of investment required, that large scale Australian- in the order of 30% or more). They also benefited (as did owned 'innovative' or research-oriented pharmaceutical the Australian public and Federal government) from the companies will become a sustainable proposition. process of reference pricing and cost-effectiveness assess- ments involved in the Australian PBS listing process. This This sanguine conclusion and impending patent expiries ensured the public relatively favourable prices for 'brand- over high sales revenue ('blockbuster') medicines, should name' medicines, but permitted slightly higher prices for have spurred Australian government policies for system- generics, compared to the US and some other developed atic industrial renewal, paying careful attention to sup- countries [6]. Claims that the PBS prevented generic sup- porting the generic pharmaceutical sector (understood as pliers engaging in price competition were exaggerated and the conditions for supply of generic medicines in Aus- misleading [7]. The PBS has unquestionable democratic tralia). Such reforms could reasonably be expected to have legitimacy. It is one of the few pieces of public policy in positioned that sector favourably in relation to challenges Australia that has been approved in a Constitutional refer- like those concerning biologic products, nanotechnology endum by a majority of citizens in a majority of States. It and pharmacogenetics. As this article attempts to show, has survived challenges to its implementing legislation in such systematic regulatory reforms have not eventuated. the High Court of Australia and been improved by a series Instead, the Australian generics industry has reacted with of federal governments over more than fifty years of dismay and anger at many recent government policies, intense health policy debate [8]. developed after relatively low levels of consultation and with little apparent appreciation of the long term chal- The core regulatory component of the PBS system is sec- lenges for medicines policy in Australia [2]. This article tion 101 (3A&B) of the National Health Act 1953 (Cth). complements that of Lofgren in this series, by exploring This, in broad terms, requires that pharmacoeconomic the factors influencing, and the consequences of, this pol- experts on the Pharmaceutical Benefits Advisory Commit- icy oversight regarding Australia's emerging biotech/nan- tee (PBAC), can only recommend PBS listing of a pharma- otech sector, as well as the importance in that context of ceutical submitted by its manufacturer after a positive reference pricing as a means of promoting markets genu- determination of its cost-effectiveness in relation to alter- inely competitive for public health outcomes as well as native therapies (whether or not involving drugs). If the sustainable profits. submitted product is proven to be substantially more costly than such comparitors, then a significant improve- Australia's Generic Pharmaceuticals Policy in a Global ment in efficacy or reduction in toxicity has to be estab- Context lished to justify listing. This provision provides the Worldwide, generic pharmaceutical manufacturers com- legislative basis for reference pricing under the Australian prise a large segment of the global pharmaceutical indus- PBS. try, and are collectively expanding at a faster rate than the so-called 'innovative' or 'brand name' sector, as a conse- Reference pricing is a central component of the basic quence of systematic regulatory encouragement, mergers architecture of the PBS system [9]. When cost-effective- and acquisitions, as well as the growth of a new market for ness analysis has determined that a new patented drug 'biosimilars' [3]. Generics sales (in the top eight national seeking PBS listing provides no greater efficacy or safety markets) in 2005 were about US$55 billion, which repre- than is appropriate comparitor, then an exercise of cost- sents about one tenth of the total global prescription drug minimisation begins in which its price is 'referenced' market [4]. A UK-based business forecaster has predicted down to that of the comparitor. Reference pricing thus is the Australian generic pharmaceuticals market, with an evidence-based mechanims for accountably and trans- appropriate regulatory support, should have doubled in parently valuing pharmaceutical innovation on grounds value to $2.4 billion a year by 2009 on the back of three of objectively demonstrated therapeutic significance [10]. per cent rise in market share from the current estimate of Prices of all drugs in such a group are tied to that of the 12.8 per cent.[5] As we shall see, for a variety of structural lowest, or in some cases the average, price [11]. This does not necessarily mean that the reference price becomes the Page 2 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 market price for all drugs in the same therapeutic class, On 29 May 2001, the then Minister of Industry, Tourism rather the reference price becomes a benchmark [12]. and Resources announced a Pharmaceuticals Industry Manufacturers can set prices higher than the reference, but Action Agenda with an Implementation Group under the in doing so they need to genuinely compete in the open Chairmanship of Dr Graeme Blackman. Its key policy rec- market against equivalent lower priced medicines. This is ommendations were to "promote increased investment one reason why it is inaccurate to say that reference pric- and exports of pharmaceuticals goods and services" ing inhibits competition on price. The resultant expert rec- (action 2); "identify opportunities and facilitate growth in ommendation may allow the creation of either positive or the export of pharmaceuticals industry" (action 7) "pro- negative lists for government reimbursement of pharma- mote two-way movement between industry and ceutical prices [13]. academia" (action 11) and "align industry activity with the National Innovation Awareness Strategy" (action 14) Between 1990 and 2004, a succession of Australian gov- [15]. ernments funded a variety of regulatory initiatives, to obtain greater public benefit from the PBS system, phar- As part of this Action Agenda, and following on from sim- maceutical R&D and the generic pharmaceuticals sector. ilar programs dating from the late 1980s, the Department Reference pricing and the capacity it gave government of Industry, Tourism and Resources between 1999 and reimbursement to value innovation scientifically against 2004 operated the $300 million Pharmaceutical Industry criteria of objectively demonstrated therapeutic signifi- Investment Program which rewarded manufacturers cance, was central to capacity of these policy initiatives to undertaking research and development in Australia. This fulfil the core elements of the Australian National Medi- program channelled support to nine companies, includ- cines Policy. These reflected a fair balance of all stake- ing one generics firm, FH Faulding & Co Limited (subse- holder concerns: quently Mayne Pharma) [16]. It was replaced from 1 July 2004 by the Pharmaceuticals Partnerships Program worth 1. timely access to the medicines that Australians need, at $150 million over five years. a cost individuals and the community can afford; These policies focused on subsidising research and devel- 2. medicines meeting appropriate standards of quality, opment and not on making the types of structural and reg- safety and efficacy; ulatory changes that would support the sustainability of a sustainable Australian generic pharmaceutical industry 3. quality use of medicines; and linked by incentives to nano/biotechology companies and increased science education infrastructure. Crucial to 4. maintaining a responsible and viable medicines indus- such sustainability is a system of high rewards for genuine try [14]. innovation objectively demonstrated by expert compari- son of outcomes on core clinical indications against all One Australian pharmaceutical industry initiative competitors. PBS reference pricing provides this high involved the minimum pricing policy, introduced in reward for success in true competition on a level playing December 1990. This encouraged patients to switch from field. These policies, in retrospect, paid insufficient atten- innovator brands to corresponding generic products. The tion to supporting and developing PBS reference pricing effect, however, was marginal, since pharmacists could as both a fiscal lever over patented drug prices and a only dispense the brand prescribed by the doctor, and the means of developing a sustaining local pharmaceutical average surcharge or brand premium was only about $1 industry capable to responding to public health demands per prescription. Brand substitution by pharmacists was and encouraging employment amongst our best science introduced on 1 December 1994, when generic medicines and chemistry graduates. constituted only 2% of PBS expenditure. This policy allowed supply of less-expensive generic medicines at the Australian Generics Policy and Reference Pricing After the request of the patient, regardless of which brand the doc- AUSFTA tor had prescribed. In February 1998, the government 2004 was a pivotal year for Australian generics medicine introduced the therapeutic group premiums scheme policy. That date marked the signature and subsequent (TGPs). Its objective was to introduce greater competition entry into force (on 1 January 2005) of the pharmaceuti- into the pricing of medicines judged to have an equivalent cals-related provisions of the Australia-US Free Trade therapeutic effect, even though they were not identical Agreement (AUSFTA). Particularly important in this con- chemical compounds. The availability of cheaper generics text was the potential for manufacturers of patented phar- was then supposed to have flow-on positive effects in maceuticals (through agencies such as an AUSFTA decreasing PBS reimbursement of all products in such Medicines Working Group and carefully staged confer- groups (despite the extent of brand premiums). ences on the future of the PBS) to lobby for or against Aus- Page 3 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 tralian medicines policies, relying on the trade sanctions- Most importantly, in relation to the PBS and the AUSFTA backed Annex 2C.1 principles (for example, reward of Annex 2C provisions he stated: pharmaceutical 'innovation') and article 17.10.4 of Chap- ter 17 (introducing so-called 'linkage evergreening,' as We went into these negotiations with an absolutely explained in another paper in this series). Since that time, clear mandate to protect and preserve the fundamen- it appears to have been very difficult for the Australian fed- tals of the PBS. This is what this agreement eral government to develop policies that would facilitate does...There is nothing in the commitments that we the growth of a high value-added generic pharmaceutical have entered into in Annex 2C or the exchange of sector. It also seems to have been more difficult for gov- letters on the PBS that requires legislative change ernment to resist the policy demands of the 'brand-name' [19]. [emphasis added] drug industry, particularly those in relation to 'eliminat- ing' reference pricing. Of even greater concern, is the pos- Australia's senior negotiator on the AUSFTA PBS pro- sibility that the Australian government struck a covert deal visions, likewise stated: during the AUSFTA negotiations (in contradiction of its public assurances), to subsequently remove PBS reference I would like to reinforce what Mr Deady has said, in pricing. Such an allegation is controversial, nevertheless, that the [AUSFTA] PBS text-annex 2C and the associ- is easily countered by continued government support for ated exchange of letters-entirely preserves the funda- reference pricing as a valuable fiscal lever over the expand- mentals of the listing and pricing mechanisms of ing costs of patented pharmaceuticals. the PBS...The principles that are articulated in para- graph 1 of Annex 2C...do not convey any specific obli- Supporting such an hypothesis was a Conference Agree- gations on the parties and they are indeed consistent ment on the Medicare Prescription Drug Improvement and with the current principles and practices underlying Modernization Act 2003 (US) which obliged the United the operation of the PBS...They do not prevent the States Trade Representative (USTR), the Secretary of Com- continued priority being accorded to fundamental merce, and the Secretary of Health and Human Services to principles that are articulated in our national drug pol- analyse: icy [National Medicines Policy], particularly in rela- tion to affordable and timely universal access to whether bilateral or multilateral trade or other negoti- medicines, innovative or otherwise. They do not pre- ations present an opportunity to address...price con- clude the continued recognition of the importance of trols and other such practices and ...shall bear in mind public health as encompassed by Doha paragraph 6 the negotiating objective set forth in the Bipartisan [World Trade Organisation Doha Declaration on TRIPS Trade Promotion Authority Act of 2002 to achieve the and Public Health]...The text of the agreed principles in elimination of government measures such as price [Annex 2c.1(d)] states: The need to recognise the value of controls and reference pricing which deny full mar- innovative pharmaceuticals through the operation of com- ket access for United States products. In so doing, the petitive markets or by adopting or maintaining procedures agencies shall provide periodic and timely briefings that appropriately value the objectively demonstrated ther- for the Committees of the House and Senate listed apeutic significance of a pharmaceutical. That text is spe- above, with an interim briefing no later than 90 days cifically intended to reflect two systems...It was purely after enactment to address negotiations to establish a intended to reflect the US system in the reference to U.S.-Australia Free Trade Agreement and, as appro- the competitive market, and in the reference to adopt- priate, other current negotiations [17]. [emphasis ing and maintaining procedures that 'appropriately added] value the objectively demonstrated therapeutic signif- icance,' it was intended to reflect the Australian system Prior to signature of the AUSFTA, Australia's chief negoti- as it currently exists. The understanding was that the ator went on record before a Commonwealth Senate agreed principles were entirely consistent with the Select Committee on the AUSFTA, as stating that the operation of the PBS in its current form and do not agreement had merely preserved the status quo in areas oblige us in any way to change the way in which we such as patent terms, data protection, market entry after operate [20]. [emphasis added] patent expiry, compulsory licensing, parallel importation and intellectual property harmonisation [18]. He admit- Yet, other evidence before the same Senate Committee ted that article 17.10.4 did require legislative change by expressed concern for the survival of the Australian Australia, but disagreed with the submission of the Aus- generic pharmaceutical industry in the changed regulatory tralian Generic Medicines Industry Association (GMiA), circumstances likely to arise as a result of the AUSFTA in denying those provisions were intended to promote [21]. Valuing of 'innovation' as a policy principle was 'evergreening' of brand name pharmaceutical patents. emphasised at the first meeting of the Medicines Working Page 4 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 Group (MWG) in Washington DC in January 2006. Aca- This start date for PSDs, however, conveniently post-dated demic commentators argued, however, that 'valuing of Pfizer's successful immediate post-AUSFTA PBAC submis- innovation' was really an industry lobbying principle that sion concerning its 'blockbuster' anti-cholesterol drug Lip- needed to be far more thoroughly tested by democratic itor (atorvastatin). Pfizer's application, in any event, was processes before it could be allowed to drive health policy to change atorvastatin's PBS listing status from cost-mini- in Australia. More public and stakeholder debate was misation (involving reference pricing because no clinical needed on the definition of 'innovation' and how it outcome advantage had been proven against the compet- should best be transparently and accountably measured. itor simvastatin) to cost-effectiveness involving a price Extensive debate was also needed on its coherence with premium, so avoiding reference pricing and the generic the existing principles of National Medicines Policy [22]. 12.5% reduction. This was successful despite the fact that Certainly the Australian generic pharmaceutical industry the PBAC noted that there were no head-to-head trials was not as systematically consulted with and supported comparing atorvastatin against simvastatin, which meas- by the Australian AUSFTA negotiators, as was the multina- ured hard outcomes like cardiovascular events, rather tional patented pharmaceutical industry by their US coun- than surrogate markers such as changes in cholesterol lev- terparts [23]. Many provisions in the AUSFTA, particularly els [26]. Some members of the PBAC subsequently those in Ch 17 introducing 'linkage evergreening,' extend- expressed concern about unusual departmental pressure ing patent terms for delayed marketing approval and concerning this decision [27]. In the author's opinion, the restricting compulsory licensing, directly opposed the context and outcome supports the fact that the Lipitor interests of Australian generics manufacturers and Austral- decision had some connection with US AUSFTA negotia- ian public health. Of great concern would be whether the tor demands that the Australian government trade off ref- reference to valuing for 'innovation' in Annex 2C.1 of the erence pricing, or begin to value innovation more through AUSFTA was negotiating code for an agreement to facili- the vague standard of what they term the 'operation of tate the explicit agenda of US negotiators in breaking the competitive markets', although an equally valid hypothe- PBS reference pricing link between innovative products sis is that a variety of other industry lobbying forces were and generic medicines. at work. The success of such pressure, should it be proven, if in any way influential in the ultimate decision, repre- On 1 August 2005, without consulting the Australian sents a serious beach of the integrity of PBAC processes generic pharmaceutical industry (as it subsequently and Australian health policy development. acknowledged), the government imposed a 12.5% man- datory cut in the benchmark price when a generic was first After the AUSFTA, the Australian government pro- launched within a particular therapeutic class. It pounded a variety of draft medicines-related policies for announced (in words that mirrored the those of Medi- public and stakeholder discussion. These included: (1) cines Australia) it would like to achieve PBS savings by Preferred prescribing to ensure that patients always have further cutting the profit margins of generic drugs, to access to medicines at no more than the co-payment. (2) allow 'headroom' for reimbursement of new, expensive, A two year phase-in for flow-on reference pricing changes 'brand-name' (or 'innovative') drugs [24]. for patented drugs that would allow sponsor companies to further demonstrate their cost-effectiveness. (3) Com- Article 2C.2(e) of the AUSFTA had required the selective pensation to pharmacists for changes to pharmacy promotion of transparency in Australian PBS listing proc- income flowing from the impact of policy change on the esses (industry commercial-on-confidence claims were PBS. (4) Disclosure by manufacturers of the actual price at excepted). Annexes in trade agreements are designed which drugs are sold. (5) A mandatory 5 per cent price cut apply to one party, rather than creating mutual obliga- for new generic medicines that are listed on the PBS (as tions (although the principles of Annex 2C.1 explicitly well as the existing mandatory 12.5 per cent cut for the create mutual obligations). This AUSFTA Annex 2C.2(e) first new generic in any reference pricing group). These obligation, however, was broadly in accord with Aus- proposals were set in the context of continuing support tralia's National Medicines Policy [25]. In fact, it provided for gradually strengthening the capacity of the PBAC cost- the impetus for the creation of the valuable Public Sum- effectiveness process to assess the offered price for innova- mary Documents (PSDs) providing community informa- tor drugs relative to both modeled or disclosed marginal tion on the outcomes of pharmaceutical company cost of production and community value based on objec- submissions from the July 2005 PBAC meeting. PSDs are tively demonstrated therapeutic significance in post-list- likely to become valuable means whereby PBAC processes ing assessments [28]. involving 'objectively demonstrated therapeutic signifi- cance' become recognized as the most efficient means of In 2005–6, the Australian Federal Government joint assessing the public value of innovative pharmaceuticals Treasury, Industry and Finance Committee also devel- in a genuinely competitive market. oped draft policies which included a tender system for the Page 5 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 supply of off-patent medicines to the PBS. This option Reference Pricing and the PBS F1-F2 Changes involved the 'winning' manufacturer(s) being able to offer Late in 2006, the Federal Minister for Health announced the drug to patients at a significantly discounted co-pay- the final version of this round of PBS reforms. This ment of up to 50%. It also required that PBS reimburse- endorsed what was, in substance, the Medicines Australia ment accorded other drugs in the same therapeutic class policy proposals for a new stand-alone (F1) classification be reduced to match the price offered by the winning ten- in the PBS for non-clinical interchangeable medicines. derer, who alone could offer the drug at a reduced co-pay- The minister announced: ment. A related proposal granted the winning tenderer six months of reduced co-payments against therapeutic com- First of all, we are dividing drugs on the PBS into two parators. At the end of this period, any manufacturer offer- categories – Formula 1 and Formula 2. Formula 1 ing the reduced price would also be able to offer patients drugs will essentially be drugs on patent, drugs for the discounted co-payment [29]. Estimated PBS savings which there is a single brand. Formula 2 drugs are resulting from these various proposals was between $300 essentially drugs off patent, drugs for which there are and $800 million a year [30]. Yet, none of these policies multiple brands. Now reference pricing arrange- was implemented and the suspicion is that they were ments, as they have traditionally operated...will not merely bargaining chips. operate in F1....[22] [emphasis added] Also in the mix were proposals drafted on behalf of pat- The National Health Amendement (Pharmaceutical Benefits ented, allegedly 'innovative' pharmaceutical manufactur- Scheme) Bill 2007 proposes to add new sections 85AB, ers in Australia through their lobby organisation 85AC to the National Health Act 1953 (Cth). These fracture Medicines Australia. These involved limiting market com- the unitary PBS formulary into two: F1 for patented or petition the market place so that brand name pharmaceu- allegedly 'innovative' medicines and F2 for generic medi- ticals could be listed in a category which did not allow cines. Price cuts and disclosures will be imposed only on them to be reference priced against generic competitors F2 generic medicines (new Division 3A of Part VII). Refer- that were interchangeable at the clinical level [31]. One ence pricing will be limited to a few existing F1 therapeu- such suggestion allowed the PBS system to pay less for a tic groups, or to where they have been established on the generic medicine every time its sales increased by a set per- imprecise standard that comparitors are 'interchangeable centage. Others required generic manufacturers to com- on an individual patient basis' (proposed sections 84 AG pete for the right to a period of market exclusivity [32]. and 101 (3BA)). There will be no ongoing reference price The most extreme policy position taken by Medicines Aus- links between medicines listed on F1 and those listed on tralia involved eventual replacement of the PBS with indi- F2 [37]. vidual consumer medicines savings accounts [33]. The path to such an outcome will not be a short one but is The new F1 category represented a fundamental challenge likely to be paved with rubble from the dismantling of ref- to the integrity of PBS reference pricing. The extent to erence pricing and the resultant increasingly high and which the inability to 'reference' the price of F1 to F2 drugs unsustainable PBS costs for patented pharmaceuticals, and the precondition of 'interchangeable on an individual whose claims to innovation remain untested against evi- patient basis' actually undermines reference pricing in the dence-based criteria of objectively demonstrated thera- future remains to be determined. Perhaps the latter stand- peutic significance against all market competitors. ard can be made the subject of criteria more in accord with the Australian mechanims of objectively demonstrated The AUSFTA MWG met for the first time in Washington therapeutic significance. If increasing numbers of pat- on 13 January 2006. At this inaugural meeting Australia's ented pharmaceutical manufacturers are successful in Trade Minister Mark Vaile stated: obtaining PBS F1 listing for pharmaceuticals that involve only minor molecular alterations ('me-too' medicines), "The core principle that we both agree on in this area...is on the basis of placebo controlled trials, that will indeed recognising the value of innovation [34]. signal that reference pricing has been traded away. Another test of the survivability of reference pricing will Documents about this AUSFTA MWG meeting were be the number of drugs that move from F1 to F2 categories obtained under a Freedom of Information application as 'incremental innovation' occurs in competitor mole- [35]. They reveal that the first AUSFTA MWG meeting dis- cules and promised health outcomes, price determina- cussed only one Op-Ed and that included this statement: tions and classifications are reassessed by the PBAC. What "Truly innovative cures should be referenced against inno- eventually happens to Pfizer's 'blockbuster' lipitor (atorv- vation in other classes, rather than against generics."[36]. astatin) may become a litmus test of whether the PBS sys- tem, as a result of such changes, has become more responsive to multinational corporate lobbying based on Page 6 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 valuing innovation by (distorted) market forces, rather is to be hoped that a full review of the F1-F2 changes takes than the 'cost' and 'responsibility' factors by which the place with a view to their dismantling. National Medicines Policy orients industry renewal towards the public health needs of Australian citizens. The Australian health minister admitted these F1-F2 changes did not greatly advance the interests of either The F2 category of medicines where there are many brands generic manufacturers or pharmacists, which, of course, is listed and groups of medicines that are interchangeable almost an admission that they served chiefly the interest between patients and pharmacists offer price discounts to of patented multinational pharmaceutical manufacturers, suppliers. From 1 August 2008 a price drop of 2 per cent a represented by Medicines Australia. year will occur over three years for F2A medicines where price competition between brands is low. A one-off price The Generics Medicine Industry Association [GMiA] is drop of 25 per cent will occur for medicines categorised as not, as I understand it, especially happy with these F2T where price competition between brands is high. For changes... [but]... we are, as part of these changes, rul- a defined list of medicines, this will be phased in over ing out a tendering system and I think that the whole remaining patent life. Given examples of F2T medicines sector, including GMiA, should be pleased that we are are simvastatin, omeprazole, ranitidine, amoxycillin and not going down the New Zealand path. The final point felodipine and around 100 other molecules currently I would make is that by removing the gross discounts costing the PBS $2 billion a year. It has been suggested from the system, we should ensure that domestic that angiotensin II receptor inhibitors will not be generic manufacturers are less at risk from predatory included, though it remains unclear whether this can be newcomers such as some of the Indian generic drug interpreted as ad hoc policy at the behest of industry lob- manufacturers [39]. bying. Over time, the Government plans to reimburse only the actual price at which the F2T medicine is being Saying that the GMiA was unhappy with the proposals sold [38]. Pharmacists have been promised compensation was an understatement. The GMiA chairman John Mont- of 40 cents for every script processed through OBS Online gomery stated: from July 1 2007 and national full line wholesalers $69 million over three years to the Community Services Obli- The reforms dismantle reference pricing, encourage gation Funding Pool. 'evergreening' and provide no incentive for the use of true generics. This flies in the face of the government's It is difficult to see how these new F1 and F2 categories ful- stated aim of ensuring sustainability of the PBS...Elim- fil any of the basic criteria of the National Medicines Pol- inating the ongoing [reference] price link between pat- icy or are in the long term interests of Australian public ented medicines and medicines producing the same health. The new F1 category clearly only benefits multina- outcome but no longer patent protected means Aus- tional manufacturers of new patented medicines and tralian taxpayers will be paying higher prices for essen- makes it difficult for their claims to innovation to be tially the same health outcome...The reforms...will tested on criteria of objectively demonstrated therapeutic undermine [PBS] fundamentals and will paradoxically significance. The F1 PBS category is presumptively anti- increase its costs [40]. competitive and pro-monopolistic in that it shields prod- ucts from having to prove their claims for PBS reimburse- These creation of an F1 PBS category largely conforms to ment against competitors. Its continuance should be plans of the multinational brand name pharmaceutical thoroughly investigated by Australian market competition manufacturers and US AUSFTA negotiators to undermine and anti-trust regulators. reference pricing. For this reason the interest of US repre- sentatives in the new F1-F2 reforms manifested in the sec- It will be critical for the practical survival of reference pric- ond meeting of the AUSFTA MWG in early May 2007, may ing under the PBS, that new patented pharmaceuticals be revealing [41]. The F1-F2 changes, however, are most continue to be listed in price groups classified (in accord problematic for being merely the most recent in a list of with s 101(3) of the National Health Act 1953 (Cth)) on sporadic Government interventions, over the past twenty the basis of hard therapeutic outcomes (QALYS, for exam- years, designed to support the Australian pharmaceutical ple from blood pressure, cholesterol or gastric ulcer reduc- industry, but failing to deliver industry renewal compara- tion). The F1-F2 category, in other words, is ble to that achieved as diversely comparable (to pick but fundamentally unsuited to allowing the PBS system to a few examples) as Ireland, Sweden, Canada or India (as remain responsive (in terms of equity of access and mod- highlighted in the latter case, by Lofgren's article in this eration in public health expenditure) to expensive new issue). The temporary rejection of close-bid competitive generation biologic generics and nanopharmaceuticals. It tendering, for example is curious. Such a tendering system may actually have favoured a generic medicines industry Page 7 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 in Australia and certainly facilitated lower prices closer to Another feature of the Australian generic pharmaceutical the marginal cost of production [42]. Tendering under the industry is that less than 5 percent of sales is represented PBS is certainly a policy worthy of reconsideration in pol- by products made from locally manufactured active phar- icies designed to facilitate industry renewal in accordance maceutical ingredients (APIs), notably those derived from with the National Medicines Policy. alkaloid extraction based on poppy farming in Tasmania (operated by GlaxoSmithKline and Johnson and John- The Australian Generics Medicines Industry and Other son) and the small scale facilities of the Australian Nuclear Recent Reforms Science and Technology Organization and the Institute of On the positive side, under amendments to the Patents Act Drug Technology. Fully imported products or fully fin- 1990 (Cth) passed on 14 September 2006, a relatively nar- ished products packaged locally represent about 62 per- row 'springboarding' exemption (which applied only to cent of sales [47]. extended term of a patent for an active pharmaceutical ingredient (API)) was replaced with a general exemption Thus, to the limited extent that any pharmaceutical man- to infringement of a 'brand-name' pharmaceutical patent ufacturing is undertaken in Australia, both the generics (defined broadly as including APIs, methods, uses and and the international brand companies operate relatively products), for a generic seeking to get access to originator small scale and low-tech operations. Adding to competi- data to develop a product prior to placing it on the market tion problems for the Australian generic pharmaceutical after originator patent expiry. This 'springboarding' industry is the proliferation of linkages (licensing, co-mar- amendment did not apply to medical devices (which as keting or distribution agreements etc) between originator we shall see, may be a significant oversight in relation to and generics firms, particularly in the form of so-called nanotherapeutics). The Australian generic pharmaceutical 'authorised' generics, 'pseudo' generics, or 'fighting industry will undoubtedly gain some assistance for this brands' [48]. These are not generics in the usual sense of change. this term, but simply repackaged brand name products designed to 'warn-off' competition from 'blockbusters' As at early 2007, the Australian generic manufacturing whose core product patent is about to expire [49]. industry remained comparatively small (employing approximately 3,000 people) and characterized increas- The extent to which government policy (or its absence) ingly by cross ownership and licensing arrangements with has contributed to the relatively subdued state of the cur- multinational brand name companies [43]. One of the rent Australian generics pharmaceuticals industry, is largest manufacturers (65% of the generics market) was unclear. Certainly, however, such policy has not involved Alphapharm (parent company Merck KgaA). Shortly after forward planning, coherent with all elements of the announcement of the generics-adverse 2006 PBS F1-F2 National Medicines Policy, to assist the Australian nano/ reforms, Alphapharm began negotiations for a sale of its bio sector meet impending challenges such as those next generics business to the Indian company Ranbaxy [44]. discussed. Eventually Alphapharm was purchased by the US generics company Mylan Laboratories. Sigma Company, the next Industrial Renewal: Biologic Generics largest generics manufacturer, merged in 2005 with Arrow It is estimated that several hundred new 'biologic' drugs Pharmaceuticals, to form Sigma Pharmaceuticals [45]. are now in development pipelines. These include, for Early in 2007 The US Federal Trade Commission (FTC) example, growth hormone, insulin, granulocyte-macro- approved Hospira's US$2 billion takeover of the Austral- phage colony-stimulating factor (GM-CSF), or erythropoi- ian generics injectables manufacturer Mayne Pharma on etin. Such drugs are distinctively derived from living cells condition Mayne sold the rights to certain analgesics and and their manufacturing companies often prefer to call an iron chelating agent, to US Barr Pharmaceuticals. themselves 'discovery generics', to highlight the amount Genepharm Australasia, one of the most forward thinking of innovative research required for successful product local generics manufacturers, recently acquired the Aus- development of these generic products. The current tralian operations of the New Zealand-owned Douglas worldwide market for protein-based biotech. drugs, is Pharmaceuticals. Generic Health is also an important over $20 billion. Biotechnology patents increased sub- local generic manufacturer with a progressive focus. Hexal stantially in most nations in the period 1991–2002, Australia is now part of Sandoz, the generics arm of the including Australia (19 to 100), Canada (53–136), Swe- Novartis Group, following Novartis' acquisition of den (24 to 93), US (1160 to 2342) and EU (650 to 2025). Hexal's parent company, Germany-based Hexal AG. In India (3 to 28), China (0 to 49) and Ireland (6 to 7) 2006 PharmAust announced it would be importing increased by comparatively small amounts, but achieved generic medicines sourced in Malaysia by Xepa-Soul Patti- the strongest gains in the most recent years [50]. son, a division of Apex Healthcare [46]. Page 8 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 In the bio/nanopharma sector, Australia retains a leading to patients, however, than the original studies, because role in the Asia-Pacific region and ranks number sixth the the underlying principle of the drug's action has already world in terms of number of firms [51]. Without careful been proven and the clinical end point is known. Some policy attention this positive situation may not continue. 'biologic' manufacturers have even filed for a new patent Remove Australia's three largest biotech companies (CSL, after significantly altering the production process. Eli Cochlear and ResMed), for example, and the sector as a Lilly, for example, developed a new manufacturing proc- whole suffered a 14.6% decline of share price in 2006 (the ess for its human growth hormone and had the protein NASDAQ Biotech Index falling 14.3 per cent in the same approved as a new orphan drug (Humatrope). Overlap- period). ping product patents, process patents, use patents and purity patents are likely to spur litigation for product One main obstacle to generic investment in such biolog- exclusivity in this area [52]. ics, is the difficulty in obtaining regulatory quality, safety and efficacy approval for marketing. To achieve such mar- Such regulatory problems contributed to the fact that, in keting approval, a generic 'biologic' manufacturer must 2004, 2005 and 2006, only 5, 2 and 4 biopharmaceuticals uniquely prove to a regulator use of the same protein respectively, were transferred from the US Center for Bio- expression system, purification protocol, and delivery logics Evaluation and Research to the Center for Drug technology as in the original patent. Unusually stringent Evaluation and Research for successful biologics license aseptic production techniques are required to guard applications [53]. A proposed US Federal Access to Life- against contamination. Savings Drugs Act is intended to alleviate such problems. It allows abbreviated approval of biological products that Safety, quality and efficacy regulators also consider that share the "principal molecular structural features" of pre- there are significant unresolved scientific issues about viously approved brand-name products. Approval for how to establish bio-equivalence between complex bio- pharmacy substitution is conditional on regulators logical macromolecules. A protein, for example, can be approving a biologic as a clinically "interchangeable" folded, glycosylated, and methylated in quite different product, rather than a "follow-on" (or "me-too'). The Bill ways if expressed in mammalian or bacterial cultures. grants the secretary of the Department of Health and Likewise, a generic monoclonal antibody may bind to the Human Services (DHHS) the extraordinary discretion same antigen, but through an alternate binding site and (and responsibility) of determining on a case-by-case with an altered affinity from the original antibody. All of basis, whether additional clinical trials are required [54]. this may alter a product's pharmacokinetics and pharma- codynamics from the brand name competitor. The source Yet, in 2006, the European Medicines Agency (EMA) fol- material in biologic manufacturing is likewise not as read- lowing new guidelines, recommended approval of San- ily classified as involving chemicals or standard generic doz's Omnitrope, a generic version of an existing growth pharmaceutical active product ingredients. hormone pharmaceutical. The EMA, unlike the US Food and Drug Administration (FDA) has guidelines assisting Most medical ethics guidelines preclude clinical trials on generic manufacturers wishing to market 'biogenerics' a product that is demonstrably inferior to the current Further, companies such as Momenta Pharmaceuticals are standard of care. Under current regulations, as long as a utilising technologies that analyze the structure of compli- company can continue making medically significant cated sugar molecules and possibly proteins, smoothing improvements on a therapeutic protein, it may be able to regulatory safety, quality and efficacy approval of these retain an exclusive market indefinitely without having to replicant pharmaceuticals [55]. repeat full-scale clinical trials. Amgen appears to have used that approach in developing an improved version of Certain geographic and political areas are racing ahead its blockbuster treatment for anaemia, Epogen (Aranesp). with biologic development. In Denmark, for example, In Europe, the Schering company likewise has gained strengths in clinical science base, management and estab- approval for a version of interferon-alpha called PEG- lished indigenous pharmaceutical companies are sup- interferon alpha, in which a polyethylene glycol (PEG) ported by policies facilitating start up and collaborations moiety increases the half-life of the protein in the body, (for example Novo Nordisk and Leo Pharma (diabetes) reducing dosing frequency. and Lundbeck (psychiatric and neurological disorders)). A particular element in Scandinavian success in this area Similarly, new generic production facilities often generate may be 'Medicon Valley', (around Copenhagen and biologics with increased purity from the original, placing Malmö in Sweden), which, along with Cambridge in the pressure on 'discovery generic' manufacturers to perform UK and Basel, is one of Europe's top three biotech clusters additional clinical trials. These, through inconvenient and [56]. a substantial additional expense, are likely to be less risky Page 9 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 Australian pharmaceutical policy makers need to learn the example, new patented drugs seeking PBS listing in con- lessons of the industry renewal policies that have been junction with a genetic test would still need to be evalu- applied, or are being attempted, to achieve such results ated for comparative cost-effectiveness against existing with biologic generics. Breaking the reference pricing link- marketed products (without linked genetic tests). Clinical age between 'innovative' and 'generic' drugs may not be trials are becoming increasingly expensive and pharmaco- useful in this context. genetics could provide a seemingly attractive way of reducing industry dependence on them for regulatory Industrial Renewal: Pharmacogenetics approvals and post-marketing surveillance. The Novartis Another biopharma area where carefully organized poli- Institutes of Biomedical Research has recently been pro- cies, building on existing skills and facility strengths, moting use of biomarkers to select research subjects with could promote Australian industrial renewal, is pharma- the idea of improving the efficiency of pharmaceutical cogenetics (the science of studying genetically-determined clinical trials. Despite cautious present investor interest, responses to medicinal drugs). Based on recent UK and US linking medicines with a genetic test could facilitate valu- studies, about 1 in 15 admissions to Australian hospitals able long term diversification in the Australian bio/nano- are due to or involve adverse drug reactions, many of these pharma industry. directly leading to adverse health outcomes [57]. Such harmful side effects vary between individuals and range Industrial Renewal: Nanotherapeutics from failure to respond therapeutically, to minor illness Medical nanotechnology involves the development of and even death [58]. A few Australian companies are drug/invasive therapeutic device products controllable at already starting to invest in this area. One prominent atomic, molecular or macromolecular levels of approxi- example is Genetic Technologies Ltd, which is licensed by mately 1–100 nanometers. Nanostructures have much Myriad Genetics (USA) to carrying out BRCA breast cancer greater strength, stability and surface area per unit mass genetic screening. Australia, generally, has a strong related than standard materials and those below 10 nm possess skills base in genetic sequencing. quantum effects where size may control, for example, the specific wavelength of emitted light [60]. Predicted developments in pharmacogenetics include (1) recording of individual patient pharmacogenetic profiles Nanotechnology is a rapidly expanding area of medical (2) establishment of prescribing guidelines, that will research and development globally.[61] Over 200 compa- relate dose to genotype and highlight the possibility of nies are actively involved in this area, viewing nanotech- adverse drug interactions (3) development of new drugs nology is having a powerful enabling function that for patients with specific genotypes (drug stratification). enhances the effectiveness and market competitiveness of This latter area could be of particular policy value in the existing health technologies [62]. Peptide nanotubes, for context of Australian biopharma industry renewal. Phar- example, have been investigated as the next generation of maceutical industry interest may extend to 'packaging' antibiotics [63] and as immune modulators [64] Nanom- drugs along with genetic tests and takeovers or licensing of edical applications been investigated in neurosurgery genetic test manufacturers [59]. [65], cardiac surgery [66] and blood disorders [67] Most major pharmaceutical companies have substantial invest- The US FDA's approval of the AmpliChip CYP450 (Roche ments in nanotechnology [68]. and Affymetrix) for in vitro diagnostics represented a sig- nificant regulatory advance for pharmacogenomics Yet, as In Australia, nanomedicine is a rapidly growing industry with 'biologicals,' regulatory changes necessary to facili- sector. Nanotechnology is a priority area for Australian tate uptake of (and public benefit from) such pharmaco- Research Council (ARC) funded research (A$53,013,909 genetic developments have yet to be systematically in 2002–03), many collaborations being promoted by the considered by Australian health policy makers. ARC Nanotechnology Network (ARCNN) [69]. Starp- harma, for example, (with US-based Dendritic NanoTech- Privacy laws, for example, will need to mesh with the nologies) and Australian government and US National capacity of a simple finger prick, mouth wash, or hair Institutes of Health (NIH) funding, is developing sample to obtain genetic information enabling a doctor to VivaGel™ as an HIV-prevention dendrimer-based microbi- rapidly determine the likelihood of a drug's efficacy and cide gel. VivaGel™ represents bottom up nanotechnology side effects. If pharmacogenetics is to minimize drug and involves a well-defined synthetic polymer, made by expenditure by reducing wastage and simplify post-mar- adding monomers in a branching manner, binding to keting surveillance, then both Therapeutic Goods Admin- glycoproteins on the surface of HIV and thus preventing, istration (TGA) and the PBS officials will need to be in a dose-response manner, HIV binding to receptors on actively involved in policy development. Under defini- T-cells. VivaGel™ is the world's first dendrimer-based drug tions of reference pricing prior to the F1-F2 categories, for to be approved for human trials by US FDA (phase 1 study Page 10 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 completed 2004). pSividia has developed Brachysil™ a ing will be critical to ensuring that the Australian public nanostructural, porosified, biosilicon platform technol- obtains value for its nanomedicine expenditure. A recent ogy for controlled drug delivery and already have a licens- European Science Foundation report recommends that ing agreement for it with a US company based in China. the flexible enabling functions of nanotechnology in medical applications may be lost if coordinated policies At present, however, most regulatory concern in Australia facilitating investment and efficient regulation are not seems to be focused generally on the safety of nanotech- developed [77]. One of the best models for facilitating nology, rather than on facilitating venture capital for a community value from nanotechnology research may be nanomedicine industry systematically focused, through the Nanotechnology Victoria (Nanovic) consortium (Uni- good regulatory architecture, on public health outcomes. versities of Melbourne, Swinburne and RMIT with the A major concern is that highly reactive and mobile engi- CSIRO) receiving start-up funding from the Victorian neered nanoparticles (ENPs) may present unique health Government [78]. risks when used in medical applications [70]. There are currently no effective methods to monitor ENP exposure Sustainable Industrial Renewal and Global Public Goods Global public goods (increasingly defined in global regu- risks [71] Research suggests that the health risks of nanos- tructures cannot be predicted a priori from their bulk latory debate in a broader sense than under traditional equivalent. In animal studies, short term exposure to economic theory) provide benefits from which no indi- ENP's has produced dose-dependent inflammatory vidual should be excluded. They span national, cultural responses and pulmonary fibrosis. Some engineered nan- and generational boundaries, their consumption theoret- oparticles have also been shown to preferentially accumu- ically not creating rivalry. Some are 'merit goods' in the late in mitochondria and inhibit function, others may sense that their promotion and protection supports values become unstable in biological settings and release ele- such as justice and equity, as well as international human mental metals [72]. rights, and requires that contrary influences emerging from pro-monopolistic markets be overridden. Examples Despite such findings, the US FDA appears to have of global public goods include not only clean air, peaceful assumed that macroscale safety may translate to that at the societies, control of communicable disease, transport and nano level [73]. A nanoparticulate reformulation of an law and order infrastructure, but systems of universal (tax- existing drug, for example, has been deemed by the FDA payer-funded) health care and pharmaceutical research not to require an Abbreviated New Drug Application and development oriented by percentage GDP prize funds (ANDA) because bioequivalence was established [74]. towards the global burden of illness. Some of these require international co-operation for their production These developments suggest that the Australian govern- (particularly safety and cost-effectiveness evaluation of ment should take a stronger long term policy interest in new health technologies). Emphasis upon such goods public benefit-focused industry renewal in the nanothera- highlights the need to seriously consider sustainability in peutics sector. A recent Senate Inquiry recommended cre- the regulatory architecture of markets. ation of a working party to consider creation of a distinct, permanent regulatory body for nanotechnology [75]. The Affordable access to essential medicines is increasingly latter approach was taken with gene technology under the recognised as a global public good, providing an essential Gene Technology Act 2000 (Cth) [76]. Such a broad licens- precondition to a reasonable quality of life for a signifi- ing approach, encompassing regulatory industrial, agri- cant proportion of every human population, being sys- cultural and therapeutic applications may not be the best tematically underprovided by private market forces and vehicle for encouraging renewal in the uniquely complex imposing burdensome international externality costs on Australian bio/nanopharma sector. third parties [79]. Further, affordable access to essential medicines appears to be emerging, both academically and Appropriate regulatory changes could favour the develop- in practise, as a core part of the international right to ment of a biopharma industry where existing off-patent health in article 12 of the International Covenant on Eco- products are re-badged to become more profitable with a nomic, Cultural and Social Rights (article 25 of the Universal more effective nano-based delivery system. On the other Declaration of Human Rights). One recent manifestation hand, hasty regulatory approval of nano-versions of exist- was the Doha Declaration, which affirmed the capacity of ing drugs (as is the case with generic 'biologicals') could WTO members to use to the full exceptions in the Trade place expenditure burdens of public health systems and Related Intellectual Property Rights agreement ("TRIPS") risk damage to public health. In this context, given the to promote public health by facilitating access to afforda- presumptive claims that nanomedicine manufacturers ble medicines [80]. It is also specifically referred to in arti- will make for reimbursement reward of their 'innovation', cle 14 of the UNESCO Universal Declaration on Bioethics the maintenance of a robust system of PBS reference pric- and Human Rights [81]. Page 11 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 Global public goods, both in general and as directly China's (largely generic) pharmaceutical industry totalled related to the bio/nanopharma sector, in the immediate US$21 billion [85]. China's pharmaceutical market aver- future, will have to be financed at the national level, with ages 18–20% growth over the last twenty years, signifi- sector specific incentives. This will probably remain the cantly higher than US and European growth over the same case, at least until universal threats such as bioterrorism, period. By 2020, China will have the world's largest phar- emergent infectious disease and climate change, create maceutical market. sufficient political will for reform of world governance structures This may particularly be so if the claims of inno- The Australia-China Trade and Economic Framework was vation by such technologies are undermined by their signed during the visit of Chinese President Hu Jintao in largely unaccountable expense [82]. Safety and cost-effec- October 2003. This Framework sets the direction for the tiveness evaluation of health technologies is one global trade and economic relationship in the long term and public good that would benefit greatly from improved included a commitment to conclude a Free Trade Agree- financial and administrative co-operation between ment feasibility study by 31 October 2005. Its purpose is nations, linked with enhanced democratic involvement to enhance trade, investment and economic cooperation [83]. Reference pricing provides a crucial mechanism in and build on Australia's commercial relations with China this context, by encouraging a market focus on objectively in a number of key sectors. It also commits the parties to demonstrated improvements in health outcomes. Fortu- further trade liberalisation. nately, Australia's National Medicines Policy has already established aims broadly in accord with this public goods One of the most common models for pharmaceutical focus on industrial renewal. development in China involves joint ventures with local partners facilitating regulatory approval and market share. One specific strategy is for public goods-focused research- China currently produces over 1,350 medicines in 24 ers to incrementally innovate patented drug molecules classes. Almost all these are what may be described as and, by institutionally treating the new patent as a public "generic" drugs. In recent years, China has patented only good, make the product available cheaply to poor patients two brand name or 'innovative' drugs (arteannuin and in the developing world. This is an approach that if sup- sodium dimercaptosuccinate) that have received interna- ported by appropriate policy, might greatly enhance the tional marketing approval. Yet China has strong ambi- commercial prospects of companies in the Australia bio/ tions in the innovative drug field, being hampered only by nanopharma sector. a present lack of access to drug design and regulatory expertise such as that possessed to a level of international English medical researchers for example, recently rede- excellence by Australia. signed an effective but extremely expensive Roche drug for hepatitis C, called pegylated interferon, so that its large China acceded to the WTO on December 11 2001. In sugar molecule (which increased its half life) on the doing so, China agreed to restructure its domestic legal inside, rather than the outside. The Shantha corporation system to, amongst other things, comply with the obliga- in Hyderabad, which had made the world's first cost-effec- tions of the WTO TRIPS agreement. Late in 2002, a year tive hepatitis B vaccine (and was already making the orig- after its accession to the WTO and agreement to abide by inal interferon), agreed to make the new medicine with TRIPS, China passed its Measures for the Administration of the Indian government subsidising the necessary pre reg- Pharmaceutical Registration (for Trial Implementation) and ulatory approval clinical trials. The UK scientists are also Implementing Regulations for the Law of the People's republic working on an innovative 'ethical pharmaceutical' for vis- of China for the Administration of Pharmaceuticals. Under ceral leishmaniasis (kala-azar), a fatal disease in Brazil, these laws, once a pharmaceutical has been approved for Bangladesh, India and the Sudan transmitted by sandflies domestic production the State Food and Drug Adminis- [84]. tration (SFDA) will not permit other companies to pro- duce or import it for "monitoring periods" of 3–5 years. Industrial renewal in the Australian pharmaceutical The chief purpose of these "monitoring periods" is to industry will not occur without robust competition check for side effects, but of course it also accords a valu- between manufacturers and ingredient suppliers in a reg- able period of market exclusivity. A 'generic' manufacturer ulatory environment that favours public goods. This being seeking market entry makes an application to provincial so, the lack of interest shown by the existing Australian drug authorities, who arrange on-site testing of samples. generic pharmaceutical sector in the China-Australia Free The SFDA will then conduct a comprehensive review, Trade Agreement is remarkable. before deciding whether to issue a Pharmaceutical Pro- duction Permit. The procedure is similar for the issuing of China is one of the world's largest manufacturers of a Pharmaceutical Processing and Export Approval Docu- generic pharmaceuticals. In 2001, the sales income of ment. Page 12 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 When interviewed as part of an Australian Research Coun- impressed by the socially and scientifically sound eco- cil grant in 2005, senior representatives of the generic nomic incentives offered by Australian PBS evidence- pharmaceutical industry in Australia appeared concerned based cost-effectiveness and reference pricing system, that to deny market access to Chinese products, ostensibly on article 5.2 of the KORUSFTA permitted South Korea to safety and quality grounds. This cannot be a sustainable establish a PBS-like reimbursement system for pharma- regulatory ambition, as the Chinese generic industry ceuticals or medical devices where the amount paid was develops and is unlikely to be in the long term national not based on 'competitive market-derived prices'. That interest of the Australian public. China is emerging as a article indicated that if it did so, then amongst other great potential market for Australian biotech and nan- things, it had to 'appropriately recognise the value of pat- otech pharmaceuticals. pSivida Ltd, for example, an Aus- ented pharmaceutical products' (article 5.2 (b) (i)). Arti- tralian listed public company with a substantial cle 5.1 (c) and (e) respectively echoed PBAC-type shareholding in pSiMedica Ltd (UK), has patented in evidence-based pharmcoeconomic analysis by referring to China its nanotech silicon drug delivery system (BioSili- 'sound economic incentives' as a method of facilitating con™). The China-Australia Free Trade Agreement offers access to patented medicines and 'transparent and Australia an opportunity to share its pre-eminent regula- accountable' procedures as a means of promoting innova- tory strengths in safety, quality, efficacy (through the tion [92]. TGA) and cost -effectiveness analysis (via the PBAC) with China, in return for enhanced access for its bio/nanop- A major report in the UK has also recommended the PBS harma products to the Chinese market. In time this could evidence-based cost-effectiveness system linked to a cen- become a stepping stone to a multilateral treaty on safety tral government price negotiation as a model for that and cost-effectiveness assessment of new health technolo- nation [93]. Interest is gathering in the US for a similar gies [86]. This background makes it remarkable then that linkage of health technology cost effectiveness analysis discussion about generic pharmaceuticals appears not with central government price negotiation [94]. even to have been raised as a topic of discussion in nego- tiations related to the China-Australia Free Trade Agree- Biosecurity is also an important global public good with ment [87]. important connections to the biopharma sector. At the time of the anthrax biosecurity threat in the US, it became Recent obligations acquired under the Australia-US Free clear that protection of the population in many developed Trade Agreement (AUSTFA) may play a problematic role nations may be crucially dependent on the capacity of in the process of industrial renewal in the Australian bio/ generic manufacturers to rapidly increase and stockpile nanopharma sector. So-called 'Fast Track' provisions necessary pharmaceuticals, if necessary under a compul- require discussion between the US FDA and the Australian sory license (Thailand, for example, recently confirmed it TGA about making "innovative" pharmaceutical products would issue compulsory licences permitted under the more speedily available (Annex 2C.4). It remains contro- WTO TRIPS agreement, to buy generic versions of Sanofi- versial whether these will be carved out from the New Zea- Aventis' anti-blood clotting pharmaceutical Plavix and land obligations under the proposed Australia-New Abbott's anti-HIV/AIDS medicine Kaletra). Zealand Therapeutic Products Agency [88]. There are also obligations acquired under the AUSTFA requiring 'valu- As the Australian pharmaceutical industry increasingly ing' of pharmaceutical "innovation" through either the researches biologic products, these may (rarely) produce operation of "competitive markets" (the US position, unintended outcomes that create biosecurity implica- requiring an enhanced role for competition and anti-trust tions. An example is the unintended development of a regulators) or "objectively demonstrated therapeutic sig- highly virulent and dangerous mousepox IL-4 [95] or bot- nificance" (the Australian position, supporting an ulinum in milk [96]. enhanced role for the PBAC in ensuring that the PBS expenditure on new PBS-listed products is commensurate In 2005, scientists from the US Armed Forces Institute of with evidence-based assessments of their comparative Pathology published the full sequence of the highly viru- community value and cost of development) (Annex lent strain of influenza virus that caused the Spanish influ- 2C.1)[89]. The "generic" (rather than "innovative") status enza pandemic in the winter of 1918–1919 and killed up of biologic and nanoparticulate versions of off-patent to 50 million people worldwide [97]. Further work based drugs will be particularly difficult to assess [90]. on the sequence led to the synthesis of an influenza strain which showed a high virulence and mortality rate when South Korean negotiators of the Korea-US Free Trade tested in mice [98]. Such developments confirm that Agreement (KORUSFTA) appear to have taken a much recent developments in genetics, genomics and other stronger stance in favour of their emerging biologic gener- areas of pharmaceutical development might (intention- ics industry [91]. The South Korean government was so ally or unintentionally) create biosecurity hazards [99]. A Page 13 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 National Centre for Biosecurity (NCB) has been estab- This article has examined the proposition that Australian lished at the Australian National University to coordinate medicines policy has not been sufficiently supportive of a scientific, legal and policy expertise in this area. high value-added generics industry, or mechanisms facili- tating that such as PBS reference pricing. It has argued that The capacity of Australia to respond to a natural disaster such policy has not involved a systematic plan for sustain- or bioterrorist threat may crucially depend on our capacity able industrial renewal of the Australian bio/nanopharma to increase supply of blood and blood products. The on- sector in the context of the challenges such as 'biologics,' shore capacity of the Commonwealth Serum laboratories nanotherapeutics, pharmacogenetics, more globalised (CSL) Pty Ltd is likely to play a crucial role in such a rapid health technology regulatory assessment and biosecurity. response situation. Continuance of the CSL monopoly in It has shown made a reasonable case that the principles of this area has been challenged by an AUSFTA side-letter the National Medicines Policy have not been consistently that creates a mechanism for opening up the area for com- applied in this context and that the integration therein of petitive tender [100]. It will also depend upon Australia extra-patent reward of innovation needs to be more sys- possessing a sophisticated local generic manufacturing tematically evaluated. capacity capable of responding to a compulsory license in a national emergency. There is presently a critical window to shape the regula- tory architecture for sustainable industrial renewal in the The Commonwealth Government Review of Australia's Australian bio/nanopharma industry. Australia for the Plasma Fractionation Arrangements, after an exhaustive time being, though having some cost disadvantages rela- study of European and US arrangements, concluded that tive to comparable economies, has several non-cost overseas fractionation of Australian plasma would involve advantages particularly in its skills base and safety and significant transitional costs ($A75million) and because cost-effectiveness regulatory systems. The crucial policy of yield considerations, there would be the potential for task, over the next decade, may be to identify the critical an ongoing shortfall in the supply of IVIg and other high-efficiency niche bio/nanotech. production areas that plasma derived products. The Review also found major should be consistently and systematically encouraged to potential supply chain risks in overseas fractionation. The meet the specific long term goals of the Australian people. Review recommended that the Federal government main- In this respect, the venture capital evolution of a public- tain the reservation exempting plasma fractionation serv- consortia model such as 'Nanovic' may present significant ices from the government procurement provisions of advantages. So too may, the retention and strengthening Chapter 15 of the AUSFTA. It recommended that the Fed- of PBS reference pricing as an important fiscal lever that eral government support CSL Bioplasma in this area in promotes genuine and sustainable market competition, as part because of the crucial role that company could play well as Australia's promotion in international fora of a in Australia's biotech industry renewal [101]. In coming health technology safety and cost-effectiveness assess- to such conclusions the review undoubtedly assisted to ment treaty. It cannot be assumed that the long term inter- focus industrial renewal in this sector not only on positive ests of all Australian citizens and the goals of public health outcomes, but public goods-supporting multinational corporate interests in the presently consti- processes. tuted patented pharmaceutical sector, will long coincide. Conclusion Acknowledgements The author is director of Australian Research Council (ARC) grants into (1) The potential strengths of the Australian bio/nanopharma the impact of international trade agreements on Australian medicines policy sector may be summarised as: (1) high levels of skills and (with Prof. David Henry and Prof. Peter Drahos) and (2) safety and cost- expertise in basic medical research and healthcare in Aus- effectiveness analysis of nanomedicine. tralia. 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How to available free of charge to the entire biomedical community Avoid Too Much of a Good Thing? 2006:311. peer reviewed and published immediately upon acceptance 83. Faunce TA: Toward a treaty on safety and cost-effectiveness of pharmaceuticals and medical devices: enhancing an endan- cited in PubMed and archived on PubMed Central gered global public good. Globalization and Health 2006, 2:5-15. yours — you keep the copyright http://www.globalizationandhealth.com/content/2/1/5 84. Boseley S: Scientists on a mission to bring cheap drugs to the BioMedcentral Submit your manuscript here: world's poorest Countries. The Guardian . January 2, 2007 http://www.biomedcentral.com/info/publishing_adv.asp Page 16 of 16 (page number not for citation purposes) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Australia and New Zealand Health Policy Springer Journals

Challenges for Australia's Bio/Nanopharma Policies: trade deals, public goods and reference pricing in sustainable industrial renewal

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Copyright © 2007 by Faunce; licensee BioMed Central Ltd.
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Medicine & Public Health; Public Health; Social Policy
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17543114
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Abstract

Industrial renewal in the bio/nanopharma sector is important for the long term strength of the Australian economy and for the health of its citizens. A variety of factors, however, may have caused inadequate attention to focus on systematically promoting domestic generic and small biotechnology manufacturers in Australian health policy. Despite recent clarifications of 'springboarding' capacity in intellectual property legislation, federal government requirements for specific generic price reductions on market entry and the potential erosion of reference pricing through new F1 and F2 categories for the purposes of Pharmaceutical Benefits Scheme (PBS) assessments, do not appear to be coherently designed to sustainably position this industry sector in 'biologics,' nanotherapeutics and pharmacogenetics. There also appears to have been little attention paid in this context to policies fostering industry sustainability and public affordability (as encouraged by the National Medicines Policy). One notable example includes that failure to consider facilitating mutual exchanges on regulatory assessment of health technology safety and cost-effectiveness (including reference pricing) in the context of ongoing free trade negotiations between Australia and China (the latter soon to possess the world's largest generic pharmaceutical manufacturing capacity). The importance of a thriving Australian domestic generic pharmaceutical and bio/nano tech industry in terms of biosecurity, similarly appears to have been given insufficient policy attention. Reasons for such policy oversights may relate to increasing interrelationships between generic and 'brand-name' manufacturers and the scale of investment required for the Australian generics and bio/nano technology sector to be a significant driver of local production. It might also result from singularly effective lobbying pressure exerted by Medicines Australia, the 'brand-name' pharmaceutical industry association, utilising controversial interpretations of reward of pharmaceutical 'innovation' provisions in the Australia-US Free Trade Agreement (AUSFTA) through the policy-development mechanisms of the AUSFTA Medicines Working Group and most recently an Innovative Medicines Working Group with the Department of Health and Ageing. This paper critically analyses such arguments in the context of emerging challenges for sustainable industrial renewal in Australia's bio/nanopharma sector. Page 1 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 and regulatory reasons, such estimates now likely to be Background Australian pharmaceutical exports were A$1.77 billion in more conservatively revised. 1999–2000 and approximately 14,000 people were employed in the industry. By 2003, Australia was export- Under the Pharmaceutical Benefits Scheme (PBS) cost- ing $1.96 billion in pharmaceutical products, but import- effectiveness reimbursement system, as it operated ing $4.4 billion (of which 45% derived from firms of US between the late 1990's and 2004, Australian generic corporate nationality). None of the top ten pharmaceuti- pharmaceutical firms competed not on PBS price, but for cal firms (by sales volume) was Australian [1]. It is deals with retail pharmacists (by offering convenient sup- unlikely in the foreseeable future, chiefly because of the ply arrangements and, most significantly, large discounts, scale of investment required, that large scale Australian- in the order of 30% or more). They also benefited (as did owned 'innovative' or research-oriented pharmaceutical the Australian public and Federal government) from the companies will become a sustainable proposition. process of reference pricing and cost-effectiveness assess- ments involved in the Australian PBS listing process. This This sanguine conclusion and impending patent expiries ensured the public relatively favourable prices for 'brand- over high sales revenue ('blockbuster') medicines, should name' medicines, but permitted slightly higher prices for have spurred Australian government policies for system- generics, compared to the US and some other developed atic industrial renewal, paying careful attention to sup- countries [6]. Claims that the PBS prevented generic sup- porting the generic pharmaceutical sector (understood as pliers engaging in price competition were exaggerated and the conditions for supply of generic medicines in Aus- misleading [7]. The PBS has unquestionable democratic tralia). Such reforms could reasonably be expected to have legitimacy. It is one of the few pieces of public policy in positioned that sector favourably in relation to challenges Australia that has been approved in a Constitutional refer- like those concerning biologic products, nanotechnology endum by a majority of citizens in a majority of States. It and pharmacogenetics. As this article attempts to show, has survived challenges to its implementing legislation in such systematic regulatory reforms have not eventuated. the High Court of Australia and been improved by a series Instead, the Australian generics industry has reacted with of federal governments over more than fifty years of dismay and anger at many recent government policies, intense health policy debate [8]. developed after relatively low levels of consultation and with little apparent appreciation of the long term chal- The core regulatory component of the PBS system is sec- lenges for medicines policy in Australia [2]. This article tion 101 (3A&B) of the National Health Act 1953 (Cth). complements that of Lofgren in this series, by exploring This, in broad terms, requires that pharmacoeconomic the factors influencing, and the consequences of, this pol- experts on the Pharmaceutical Benefits Advisory Commit- icy oversight regarding Australia's emerging biotech/nan- tee (PBAC), can only recommend PBS listing of a pharma- otech sector, as well as the importance in that context of ceutical submitted by its manufacturer after a positive reference pricing as a means of promoting markets genu- determination of its cost-effectiveness in relation to alter- inely competitive for public health outcomes as well as native therapies (whether or not involving drugs). If the sustainable profits. submitted product is proven to be substantially more costly than such comparitors, then a significant improve- Australia's Generic Pharmaceuticals Policy in a Global ment in efficacy or reduction in toxicity has to be estab- Context lished to justify listing. This provision provides the Worldwide, generic pharmaceutical manufacturers com- legislative basis for reference pricing under the Australian prise a large segment of the global pharmaceutical indus- PBS. try, and are collectively expanding at a faster rate than the so-called 'innovative' or 'brand name' sector, as a conse- Reference pricing is a central component of the basic quence of systematic regulatory encouragement, mergers architecture of the PBS system [9]. When cost-effective- and acquisitions, as well as the growth of a new market for ness analysis has determined that a new patented drug 'biosimilars' [3]. Generics sales (in the top eight national seeking PBS listing provides no greater efficacy or safety markets) in 2005 were about US$55 billion, which repre- than is appropriate comparitor, then an exercise of cost- sents about one tenth of the total global prescription drug minimisation begins in which its price is 'referenced' market [4]. A UK-based business forecaster has predicted down to that of the comparitor. Reference pricing thus is the Australian generic pharmaceuticals market, with an evidence-based mechanims for accountably and trans- appropriate regulatory support, should have doubled in parently valuing pharmaceutical innovation on grounds value to $2.4 billion a year by 2009 on the back of three of objectively demonstrated therapeutic significance [10]. per cent rise in market share from the current estimate of Prices of all drugs in such a group are tied to that of the 12.8 per cent.[5] As we shall see, for a variety of structural lowest, or in some cases the average, price [11]. This does not necessarily mean that the reference price becomes the Page 2 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 market price for all drugs in the same therapeutic class, On 29 May 2001, the then Minister of Industry, Tourism rather the reference price becomes a benchmark [12]. and Resources announced a Pharmaceuticals Industry Manufacturers can set prices higher than the reference, but Action Agenda with an Implementation Group under the in doing so they need to genuinely compete in the open Chairmanship of Dr Graeme Blackman. Its key policy rec- market against equivalent lower priced medicines. This is ommendations were to "promote increased investment one reason why it is inaccurate to say that reference pric- and exports of pharmaceuticals goods and services" ing inhibits competition on price. The resultant expert rec- (action 2); "identify opportunities and facilitate growth in ommendation may allow the creation of either positive or the export of pharmaceuticals industry" (action 7) "pro- negative lists for government reimbursement of pharma- mote two-way movement between industry and ceutical prices [13]. academia" (action 11) and "align industry activity with the National Innovation Awareness Strategy" (action 14) Between 1990 and 2004, a succession of Australian gov- [15]. ernments funded a variety of regulatory initiatives, to obtain greater public benefit from the PBS system, phar- As part of this Action Agenda, and following on from sim- maceutical R&D and the generic pharmaceuticals sector. ilar programs dating from the late 1980s, the Department Reference pricing and the capacity it gave government of Industry, Tourism and Resources between 1999 and reimbursement to value innovation scientifically against 2004 operated the $300 million Pharmaceutical Industry criteria of objectively demonstrated therapeutic signifi- Investment Program which rewarded manufacturers cance, was central to capacity of these policy initiatives to undertaking research and development in Australia. This fulfil the core elements of the Australian National Medi- program channelled support to nine companies, includ- cines Policy. These reflected a fair balance of all stake- ing one generics firm, FH Faulding & Co Limited (subse- holder concerns: quently Mayne Pharma) [16]. It was replaced from 1 July 2004 by the Pharmaceuticals Partnerships Program worth 1. timely access to the medicines that Australians need, at $150 million over five years. a cost individuals and the community can afford; These policies focused on subsidising research and devel- 2. medicines meeting appropriate standards of quality, opment and not on making the types of structural and reg- safety and efficacy; ulatory changes that would support the sustainability of a sustainable Australian generic pharmaceutical industry 3. quality use of medicines; and linked by incentives to nano/biotechology companies and increased science education infrastructure. Crucial to 4. maintaining a responsible and viable medicines indus- such sustainability is a system of high rewards for genuine try [14]. innovation objectively demonstrated by expert compari- son of outcomes on core clinical indications against all One Australian pharmaceutical industry initiative competitors. PBS reference pricing provides this high involved the minimum pricing policy, introduced in reward for success in true competition on a level playing December 1990. This encouraged patients to switch from field. These policies, in retrospect, paid insufficient atten- innovator brands to corresponding generic products. The tion to supporting and developing PBS reference pricing effect, however, was marginal, since pharmacists could as both a fiscal lever over patented drug prices and a only dispense the brand prescribed by the doctor, and the means of developing a sustaining local pharmaceutical average surcharge or brand premium was only about $1 industry capable to responding to public health demands per prescription. Brand substitution by pharmacists was and encouraging employment amongst our best science introduced on 1 December 1994, when generic medicines and chemistry graduates. constituted only 2% of PBS expenditure. This policy allowed supply of less-expensive generic medicines at the Australian Generics Policy and Reference Pricing After the request of the patient, regardless of which brand the doc- AUSFTA tor had prescribed. In February 1998, the government 2004 was a pivotal year for Australian generics medicine introduced the therapeutic group premiums scheme policy. That date marked the signature and subsequent (TGPs). Its objective was to introduce greater competition entry into force (on 1 January 2005) of the pharmaceuti- into the pricing of medicines judged to have an equivalent cals-related provisions of the Australia-US Free Trade therapeutic effect, even though they were not identical Agreement (AUSFTA). Particularly important in this con- chemical compounds. The availability of cheaper generics text was the potential for manufacturers of patented phar- was then supposed to have flow-on positive effects in maceuticals (through agencies such as an AUSFTA decreasing PBS reimbursement of all products in such Medicines Working Group and carefully staged confer- groups (despite the extent of brand premiums). ences on the future of the PBS) to lobby for or against Aus- Page 3 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 tralian medicines policies, relying on the trade sanctions- Most importantly, in relation to the PBS and the AUSFTA backed Annex 2C.1 principles (for example, reward of Annex 2C provisions he stated: pharmaceutical 'innovation') and article 17.10.4 of Chap- ter 17 (introducing so-called 'linkage evergreening,' as We went into these negotiations with an absolutely explained in another paper in this series). Since that time, clear mandate to protect and preserve the fundamen- it appears to have been very difficult for the Australian fed- tals of the PBS. This is what this agreement eral government to develop policies that would facilitate does...There is nothing in the commitments that we the growth of a high value-added generic pharmaceutical have entered into in Annex 2C or the exchange of sector. It also seems to have been more difficult for gov- letters on the PBS that requires legislative change ernment to resist the policy demands of the 'brand-name' [19]. [emphasis added] drug industry, particularly those in relation to 'eliminat- ing' reference pricing. Of even greater concern, is the pos- Australia's senior negotiator on the AUSFTA PBS pro- sibility that the Australian government struck a covert deal visions, likewise stated: during the AUSFTA negotiations (in contradiction of its public assurances), to subsequently remove PBS reference I would like to reinforce what Mr Deady has said, in pricing. Such an allegation is controversial, nevertheless, that the [AUSFTA] PBS text-annex 2C and the associ- is easily countered by continued government support for ated exchange of letters-entirely preserves the funda- reference pricing as a valuable fiscal lever over the expand- mentals of the listing and pricing mechanisms of ing costs of patented pharmaceuticals. the PBS...The principles that are articulated in para- graph 1 of Annex 2C...do not convey any specific obli- Supporting such an hypothesis was a Conference Agree- gations on the parties and they are indeed consistent ment on the Medicare Prescription Drug Improvement and with the current principles and practices underlying Modernization Act 2003 (US) which obliged the United the operation of the PBS...They do not prevent the States Trade Representative (USTR), the Secretary of Com- continued priority being accorded to fundamental merce, and the Secretary of Health and Human Services to principles that are articulated in our national drug pol- analyse: icy [National Medicines Policy], particularly in rela- tion to affordable and timely universal access to whether bilateral or multilateral trade or other negoti- medicines, innovative or otherwise. They do not pre- ations present an opportunity to address...price con- clude the continued recognition of the importance of trols and other such practices and ...shall bear in mind public health as encompassed by Doha paragraph 6 the negotiating objective set forth in the Bipartisan [World Trade Organisation Doha Declaration on TRIPS Trade Promotion Authority Act of 2002 to achieve the and Public Health]...The text of the agreed principles in elimination of government measures such as price [Annex 2c.1(d)] states: The need to recognise the value of controls and reference pricing which deny full mar- innovative pharmaceuticals through the operation of com- ket access for United States products. In so doing, the petitive markets or by adopting or maintaining procedures agencies shall provide periodic and timely briefings that appropriately value the objectively demonstrated ther- for the Committees of the House and Senate listed apeutic significance of a pharmaceutical. That text is spe- above, with an interim briefing no later than 90 days cifically intended to reflect two systems...It was purely after enactment to address negotiations to establish a intended to reflect the US system in the reference to U.S.-Australia Free Trade Agreement and, as appro- the competitive market, and in the reference to adopt- priate, other current negotiations [17]. [emphasis ing and maintaining procedures that 'appropriately added] value the objectively demonstrated therapeutic signif- icance,' it was intended to reflect the Australian system Prior to signature of the AUSFTA, Australia's chief negoti- as it currently exists. The understanding was that the ator went on record before a Commonwealth Senate agreed principles were entirely consistent with the Select Committee on the AUSFTA, as stating that the operation of the PBS in its current form and do not agreement had merely preserved the status quo in areas oblige us in any way to change the way in which we such as patent terms, data protection, market entry after operate [20]. [emphasis added] patent expiry, compulsory licensing, parallel importation and intellectual property harmonisation [18]. He admit- Yet, other evidence before the same Senate Committee ted that article 17.10.4 did require legislative change by expressed concern for the survival of the Australian Australia, but disagreed with the submission of the Aus- generic pharmaceutical industry in the changed regulatory tralian Generic Medicines Industry Association (GMiA), circumstances likely to arise as a result of the AUSFTA in denying those provisions were intended to promote [21]. Valuing of 'innovation' as a policy principle was 'evergreening' of brand name pharmaceutical patents. emphasised at the first meeting of the Medicines Working Page 4 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 Group (MWG) in Washington DC in January 2006. Aca- This start date for PSDs, however, conveniently post-dated demic commentators argued, however, that 'valuing of Pfizer's successful immediate post-AUSFTA PBAC submis- innovation' was really an industry lobbying principle that sion concerning its 'blockbuster' anti-cholesterol drug Lip- needed to be far more thoroughly tested by democratic itor (atorvastatin). Pfizer's application, in any event, was processes before it could be allowed to drive health policy to change atorvastatin's PBS listing status from cost-mini- in Australia. More public and stakeholder debate was misation (involving reference pricing because no clinical needed on the definition of 'innovation' and how it outcome advantage had been proven against the compet- should best be transparently and accountably measured. itor simvastatin) to cost-effectiveness involving a price Extensive debate was also needed on its coherence with premium, so avoiding reference pricing and the generic the existing principles of National Medicines Policy [22]. 12.5% reduction. This was successful despite the fact that Certainly the Australian generic pharmaceutical industry the PBAC noted that there were no head-to-head trials was not as systematically consulted with and supported comparing atorvastatin against simvastatin, which meas- by the Australian AUSFTA negotiators, as was the multina- ured hard outcomes like cardiovascular events, rather tional patented pharmaceutical industry by their US coun- than surrogate markers such as changes in cholesterol lev- terparts [23]. Many provisions in the AUSFTA, particularly els [26]. Some members of the PBAC subsequently those in Ch 17 introducing 'linkage evergreening,' extend- expressed concern about unusual departmental pressure ing patent terms for delayed marketing approval and concerning this decision [27]. In the author's opinion, the restricting compulsory licensing, directly opposed the context and outcome supports the fact that the Lipitor interests of Australian generics manufacturers and Austral- decision had some connection with US AUSFTA negotia- ian public health. Of great concern would be whether the tor demands that the Australian government trade off ref- reference to valuing for 'innovation' in Annex 2C.1 of the erence pricing, or begin to value innovation more through AUSFTA was negotiating code for an agreement to facili- the vague standard of what they term the 'operation of tate the explicit agenda of US negotiators in breaking the competitive markets', although an equally valid hypothe- PBS reference pricing link between innovative products sis is that a variety of other industry lobbying forces were and generic medicines. at work. The success of such pressure, should it be proven, if in any way influential in the ultimate decision, repre- On 1 August 2005, without consulting the Australian sents a serious beach of the integrity of PBAC processes generic pharmaceutical industry (as it subsequently and Australian health policy development. acknowledged), the government imposed a 12.5% man- datory cut in the benchmark price when a generic was first After the AUSFTA, the Australian government pro- launched within a particular therapeutic class. It pounded a variety of draft medicines-related policies for announced (in words that mirrored the those of Medi- public and stakeholder discussion. These included: (1) cines Australia) it would like to achieve PBS savings by Preferred prescribing to ensure that patients always have further cutting the profit margins of generic drugs, to access to medicines at no more than the co-payment. (2) allow 'headroom' for reimbursement of new, expensive, A two year phase-in for flow-on reference pricing changes 'brand-name' (or 'innovative') drugs [24]. for patented drugs that would allow sponsor companies to further demonstrate their cost-effectiveness. (3) Com- Article 2C.2(e) of the AUSFTA had required the selective pensation to pharmacists for changes to pharmacy promotion of transparency in Australian PBS listing proc- income flowing from the impact of policy change on the esses (industry commercial-on-confidence claims were PBS. (4) Disclosure by manufacturers of the actual price at excepted). Annexes in trade agreements are designed which drugs are sold. (5) A mandatory 5 per cent price cut apply to one party, rather than creating mutual obliga- for new generic medicines that are listed on the PBS (as tions (although the principles of Annex 2C.1 explicitly well as the existing mandatory 12.5 per cent cut for the create mutual obligations). This AUSFTA Annex 2C.2(e) first new generic in any reference pricing group). These obligation, however, was broadly in accord with Aus- proposals were set in the context of continuing support tralia's National Medicines Policy [25]. In fact, it provided for gradually strengthening the capacity of the PBAC cost- the impetus for the creation of the valuable Public Sum- effectiveness process to assess the offered price for innova- mary Documents (PSDs) providing community informa- tor drugs relative to both modeled or disclosed marginal tion on the outcomes of pharmaceutical company cost of production and community value based on objec- submissions from the July 2005 PBAC meeting. PSDs are tively demonstrated therapeutic significance in post-list- likely to become valuable means whereby PBAC processes ing assessments [28]. involving 'objectively demonstrated therapeutic signifi- cance' become recognized as the most efficient means of In 2005–6, the Australian Federal Government joint assessing the public value of innovative pharmaceuticals Treasury, Industry and Finance Committee also devel- in a genuinely competitive market. oped draft policies which included a tender system for the Page 5 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 supply of off-patent medicines to the PBS. This option Reference Pricing and the PBS F1-F2 Changes involved the 'winning' manufacturer(s) being able to offer Late in 2006, the Federal Minister for Health announced the drug to patients at a significantly discounted co-pay- the final version of this round of PBS reforms. This ment of up to 50%. It also required that PBS reimburse- endorsed what was, in substance, the Medicines Australia ment accorded other drugs in the same therapeutic class policy proposals for a new stand-alone (F1) classification be reduced to match the price offered by the winning ten- in the PBS for non-clinical interchangeable medicines. derer, who alone could offer the drug at a reduced co-pay- The minister announced: ment. A related proposal granted the winning tenderer six months of reduced co-payments against therapeutic com- First of all, we are dividing drugs on the PBS into two parators. At the end of this period, any manufacturer offer- categories – Formula 1 and Formula 2. Formula 1 ing the reduced price would also be able to offer patients drugs will essentially be drugs on patent, drugs for the discounted co-payment [29]. Estimated PBS savings which there is a single brand. Formula 2 drugs are resulting from these various proposals was between $300 essentially drugs off patent, drugs for which there are and $800 million a year [30]. Yet, none of these policies multiple brands. Now reference pricing arrange- was implemented and the suspicion is that they were ments, as they have traditionally operated...will not merely bargaining chips. operate in F1....[22] [emphasis added] Also in the mix were proposals drafted on behalf of pat- The National Health Amendement (Pharmaceutical Benefits ented, allegedly 'innovative' pharmaceutical manufactur- Scheme) Bill 2007 proposes to add new sections 85AB, ers in Australia through their lobby organisation 85AC to the National Health Act 1953 (Cth). These fracture Medicines Australia. These involved limiting market com- the unitary PBS formulary into two: F1 for patented or petition the market place so that brand name pharmaceu- allegedly 'innovative' medicines and F2 for generic medi- ticals could be listed in a category which did not allow cines. Price cuts and disclosures will be imposed only on them to be reference priced against generic competitors F2 generic medicines (new Division 3A of Part VII). Refer- that were interchangeable at the clinical level [31]. One ence pricing will be limited to a few existing F1 therapeu- such suggestion allowed the PBS system to pay less for a tic groups, or to where they have been established on the generic medicine every time its sales increased by a set per- imprecise standard that comparitors are 'interchangeable centage. Others required generic manufacturers to com- on an individual patient basis' (proposed sections 84 AG pete for the right to a period of market exclusivity [32]. and 101 (3BA)). There will be no ongoing reference price The most extreme policy position taken by Medicines Aus- links between medicines listed on F1 and those listed on tralia involved eventual replacement of the PBS with indi- F2 [37]. vidual consumer medicines savings accounts [33]. The path to such an outcome will not be a short one but is The new F1 category represented a fundamental challenge likely to be paved with rubble from the dismantling of ref- to the integrity of PBS reference pricing. The extent to erence pricing and the resultant increasingly high and which the inability to 'reference' the price of F1 to F2 drugs unsustainable PBS costs for patented pharmaceuticals, and the precondition of 'interchangeable on an individual whose claims to innovation remain untested against evi- patient basis' actually undermines reference pricing in the dence-based criteria of objectively demonstrated thera- future remains to be determined. Perhaps the latter stand- peutic significance against all market competitors. ard can be made the subject of criteria more in accord with the Australian mechanims of objectively demonstrated The AUSFTA MWG met for the first time in Washington therapeutic significance. If increasing numbers of pat- on 13 January 2006. At this inaugural meeting Australia's ented pharmaceutical manufacturers are successful in Trade Minister Mark Vaile stated: obtaining PBS F1 listing for pharmaceuticals that involve only minor molecular alterations ('me-too' medicines), "The core principle that we both agree on in this area...is on the basis of placebo controlled trials, that will indeed recognising the value of innovation [34]. signal that reference pricing has been traded away. Another test of the survivability of reference pricing will Documents about this AUSFTA MWG meeting were be the number of drugs that move from F1 to F2 categories obtained under a Freedom of Information application as 'incremental innovation' occurs in competitor mole- [35]. They reveal that the first AUSFTA MWG meeting dis- cules and promised health outcomes, price determina- cussed only one Op-Ed and that included this statement: tions and classifications are reassessed by the PBAC. What "Truly innovative cures should be referenced against inno- eventually happens to Pfizer's 'blockbuster' lipitor (atorv- vation in other classes, rather than against generics."[36]. astatin) may become a litmus test of whether the PBS sys- tem, as a result of such changes, has become more responsive to multinational corporate lobbying based on Page 6 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 valuing innovation by (distorted) market forces, rather is to be hoped that a full review of the F1-F2 changes takes than the 'cost' and 'responsibility' factors by which the place with a view to their dismantling. National Medicines Policy orients industry renewal towards the public health needs of Australian citizens. The Australian health minister admitted these F1-F2 changes did not greatly advance the interests of either The F2 category of medicines where there are many brands generic manufacturers or pharmacists, which, of course, is listed and groups of medicines that are interchangeable almost an admission that they served chiefly the interest between patients and pharmacists offer price discounts to of patented multinational pharmaceutical manufacturers, suppliers. From 1 August 2008 a price drop of 2 per cent a represented by Medicines Australia. year will occur over three years for F2A medicines where price competition between brands is low. A one-off price The Generics Medicine Industry Association [GMiA] is drop of 25 per cent will occur for medicines categorised as not, as I understand it, especially happy with these F2T where price competition between brands is high. For changes... [but]... we are, as part of these changes, rul- a defined list of medicines, this will be phased in over ing out a tendering system and I think that the whole remaining patent life. Given examples of F2T medicines sector, including GMiA, should be pleased that we are are simvastatin, omeprazole, ranitidine, amoxycillin and not going down the New Zealand path. The final point felodipine and around 100 other molecules currently I would make is that by removing the gross discounts costing the PBS $2 billion a year. It has been suggested from the system, we should ensure that domestic that angiotensin II receptor inhibitors will not be generic manufacturers are less at risk from predatory included, though it remains unclear whether this can be newcomers such as some of the Indian generic drug interpreted as ad hoc policy at the behest of industry lob- manufacturers [39]. bying. Over time, the Government plans to reimburse only the actual price at which the F2T medicine is being Saying that the GMiA was unhappy with the proposals sold [38]. Pharmacists have been promised compensation was an understatement. The GMiA chairman John Mont- of 40 cents for every script processed through OBS Online gomery stated: from July 1 2007 and national full line wholesalers $69 million over three years to the Community Services Obli- The reforms dismantle reference pricing, encourage gation Funding Pool. 'evergreening' and provide no incentive for the use of true generics. This flies in the face of the government's It is difficult to see how these new F1 and F2 categories ful- stated aim of ensuring sustainability of the PBS...Elim- fil any of the basic criteria of the National Medicines Pol- inating the ongoing [reference] price link between pat- icy or are in the long term interests of Australian public ented medicines and medicines producing the same health. The new F1 category clearly only benefits multina- outcome but no longer patent protected means Aus- tional manufacturers of new patented medicines and tralian taxpayers will be paying higher prices for essen- makes it difficult for their claims to innovation to be tially the same health outcome...The reforms...will tested on criteria of objectively demonstrated therapeutic undermine [PBS] fundamentals and will paradoxically significance. The F1 PBS category is presumptively anti- increase its costs [40]. competitive and pro-monopolistic in that it shields prod- ucts from having to prove their claims for PBS reimburse- These creation of an F1 PBS category largely conforms to ment against competitors. Its continuance should be plans of the multinational brand name pharmaceutical thoroughly investigated by Australian market competition manufacturers and US AUSFTA negotiators to undermine and anti-trust regulators. reference pricing. For this reason the interest of US repre- sentatives in the new F1-F2 reforms manifested in the sec- It will be critical for the practical survival of reference pric- ond meeting of the AUSFTA MWG in early May 2007, may ing under the PBS, that new patented pharmaceuticals be revealing [41]. The F1-F2 changes, however, are most continue to be listed in price groups classified (in accord problematic for being merely the most recent in a list of with s 101(3) of the National Health Act 1953 (Cth)) on sporadic Government interventions, over the past twenty the basis of hard therapeutic outcomes (QALYS, for exam- years, designed to support the Australian pharmaceutical ple from blood pressure, cholesterol or gastric ulcer reduc- industry, but failing to deliver industry renewal compara- tion). The F1-F2 category, in other words, is ble to that achieved as diversely comparable (to pick but fundamentally unsuited to allowing the PBS system to a few examples) as Ireland, Sweden, Canada or India (as remain responsive (in terms of equity of access and mod- highlighted in the latter case, by Lofgren's article in this eration in public health expenditure) to expensive new issue). The temporary rejection of close-bid competitive generation biologic generics and nanopharmaceuticals. It tendering, for example is curious. Such a tendering system may actually have favoured a generic medicines industry Page 7 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 in Australia and certainly facilitated lower prices closer to Another feature of the Australian generic pharmaceutical the marginal cost of production [42]. Tendering under the industry is that less than 5 percent of sales is represented PBS is certainly a policy worthy of reconsideration in pol- by products made from locally manufactured active phar- icies designed to facilitate industry renewal in accordance maceutical ingredients (APIs), notably those derived from with the National Medicines Policy. alkaloid extraction based on poppy farming in Tasmania (operated by GlaxoSmithKline and Johnson and John- The Australian Generics Medicines Industry and Other son) and the small scale facilities of the Australian Nuclear Recent Reforms Science and Technology Organization and the Institute of On the positive side, under amendments to the Patents Act Drug Technology. Fully imported products or fully fin- 1990 (Cth) passed on 14 September 2006, a relatively nar- ished products packaged locally represent about 62 per- row 'springboarding' exemption (which applied only to cent of sales [47]. extended term of a patent for an active pharmaceutical ingredient (API)) was replaced with a general exemption Thus, to the limited extent that any pharmaceutical man- to infringement of a 'brand-name' pharmaceutical patent ufacturing is undertaken in Australia, both the generics (defined broadly as including APIs, methods, uses and and the international brand companies operate relatively products), for a generic seeking to get access to originator small scale and low-tech operations. Adding to competi- data to develop a product prior to placing it on the market tion problems for the Australian generic pharmaceutical after originator patent expiry. This 'springboarding' industry is the proliferation of linkages (licensing, co-mar- amendment did not apply to medical devices (which as keting or distribution agreements etc) between originator we shall see, may be a significant oversight in relation to and generics firms, particularly in the form of so-called nanotherapeutics). The Australian generic pharmaceutical 'authorised' generics, 'pseudo' generics, or 'fighting industry will undoubtedly gain some assistance for this brands' [48]. These are not generics in the usual sense of change. this term, but simply repackaged brand name products designed to 'warn-off' competition from 'blockbusters' As at early 2007, the Australian generic manufacturing whose core product patent is about to expire [49]. industry remained comparatively small (employing approximately 3,000 people) and characterized increas- The extent to which government policy (or its absence) ingly by cross ownership and licensing arrangements with has contributed to the relatively subdued state of the cur- multinational brand name companies [43]. One of the rent Australian generics pharmaceuticals industry, is largest manufacturers (65% of the generics market) was unclear. Certainly, however, such policy has not involved Alphapharm (parent company Merck KgaA). Shortly after forward planning, coherent with all elements of the announcement of the generics-adverse 2006 PBS F1-F2 National Medicines Policy, to assist the Australian nano/ reforms, Alphapharm began negotiations for a sale of its bio sector meet impending challenges such as those next generics business to the Indian company Ranbaxy [44]. discussed. Eventually Alphapharm was purchased by the US generics company Mylan Laboratories. Sigma Company, the next Industrial Renewal: Biologic Generics largest generics manufacturer, merged in 2005 with Arrow It is estimated that several hundred new 'biologic' drugs Pharmaceuticals, to form Sigma Pharmaceuticals [45]. are now in development pipelines. These include, for Early in 2007 The US Federal Trade Commission (FTC) example, growth hormone, insulin, granulocyte-macro- approved Hospira's US$2 billion takeover of the Austral- phage colony-stimulating factor (GM-CSF), or erythropoi- ian generics injectables manufacturer Mayne Pharma on etin. Such drugs are distinctively derived from living cells condition Mayne sold the rights to certain analgesics and and their manufacturing companies often prefer to call an iron chelating agent, to US Barr Pharmaceuticals. themselves 'discovery generics', to highlight the amount Genepharm Australasia, one of the most forward thinking of innovative research required for successful product local generics manufacturers, recently acquired the Aus- development of these generic products. The current tralian operations of the New Zealand-owned Douglas worldwide market for protein-based biotech. drugs, is Pharmaceuticals. Generic Health is also an important over $20 billion. Biotechnology patents increased sub- local generic manufacturer with a progressive focus. Hexal stantially in most nations in the period 1991–2002, Australia is now part of Sandoz, the generics arm of the including Australia (19 to 100), Canada (53–136), Swe- Novartis Group, following Novartis' acquisition of den (24 to 93), US (1160 to 2342) and EU (650 to 2025). Hexal's parent company, Germany-based Hexal AG. In India (3 to 28), China (0 to 49) and Ireland (6 to 7) 2006 PharmAust announced it would be importing increased by comparatively small amounts, but achieved generic medicines sourced in Malaysia by Xepa-Soul Patti- the strongest gains in the most recent years [50]. son, a division of Apex Healthcare [46]. Page 8 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 In the bio/nanopharma sector, Australia retains a leading to patients, however, than the original studies, because role in the Asia-Pacific region and ranks number sixth the the underlying principle of the drug's action has already world in terms of number of firms [51]. Without careful been proven and the clinical end point is known. Some policy attention this positive situation may not continue. 'biologic' manufacturers have even filed for a new patent Remove Australia's three largest biotech companies (CSL, after significantly altering the production process. Eli Cochlear and ResMed), for example, and the sector as a Lilly, for example, developed a new manufacturing proc- whole suffered a 14.6% decline of share price in 2006 (the ess for its human growth hormone and had the protein NASDAQ Biotech Index falling 14.3 per cent in the same approved as a new orphan drug (Humatrope). Overlap- period). ping product patents, process patents, use patents and purity patents are likely to spur litigation for product One main obstacle to generic investment in such biolog- exclusivity in this area [52]. ics, is the difficulty in obtaining regulatory quality, safety and efficacy approval for marketing. To achieve such mar- Such regulatory problems contributed to the fact that, in keting approval, a generic 'biologic' manufacturer must 2004, 2005 and 2006, only 5, 2 and 4 biopharmaceuticals uniquely prove to a regulator use of the same protein respectively, were transferred from the US Center for Bio- expression system, purification protocol, and delivery logics Evaluation and Research to the Center for Drug technology as in the original patent. Unusually stringent Evaluation and Research for successful biologics license aseptic production techniques are required to guard applications [53]. A proposed US Federal Access to Life- against contamination. Savings Drugs Act is intended to alleviate such problems. It allows abbreviated approval of biological products that Safety, quality and efficacy regulators also consider that share the "principal molecular structural features" of pre- there are significant unresolved scientific issues about viously approved brand-name products. Approval for how to establish bio-equivalence between complex bio- pharmacy substitution is conditional on regulators logical macromolecules. A protein, for example, can be approving a biologic as a clinically "interchangeable" folded, glycosylated, and methylated in quite different product, rather than a "follow-on" (or "me-too'). The Bill ways if expressed in mammalian or bacterial cultures. grants the secretary of the Department of Health and Likewise, a generic monoclonal antibody may bind to the Human Services (DHHS) the extraordinary discretion same antigen, but through an alternate binding site and (and responsibility) of determining on a case-by-case with an altered affinity from the original antibody. All of basis, whether additional clinical trials are required [54]. this may alter a product's pharmacokinetics and pharma- codynamics from the brand name competitor. The source Yet, in 2006, the European Medicines Agency (EMA) fol- material in biologic manufacturing is likewise not as read- lowing new guidelines, recommended approval of San- ily classified as involving chemicals or standard generic doz's Omnitrope, a generic version of an existing growth pharmaceutical active product ingredients. hormone pharmaceutical. The EMA, unlike the US Food and Drug Administration (FDA) has guidelines assisting Most medical ethics guidelines preclude clinical trials on generic manufacturers wishing to market 'biogenerics' a product that is demonstrably inferior to the current Further, companies such as Momenta Pharmaceuticals are standard of care. Under current regulations, as long as a utilising technologies that analyze the structure of compli- company can continue making medically significant cated sugar molecules and possibly proteins, smoothing improvements on a therapeutic protein, it may be able to regulatory safety, quality and efficacy approval of these retain an exclusive market indefinitely without having to replicant pharmaceuticals [55]. repeat full-scale clinical trials. Amgen appears to have used that approach in developing an improved version of Certain geographic and political areas are racing ahead its blockbuster treatment for anaemia, Epogen (Aranesp). with biologic development. In Denmark, for example, In Europe, the Schering company likewise has gained strengths in clinical science base, management and estab- approval for a version of interferon-alpha called PEG- lished indigenous pharmaceutical companies are sup- interferon alpha, in which a polyethylene glycol (PEG) ported by policies facilitating start up and collaborations moiety increases the half-life of the protein in the body, (for example Novo Nordisk and Leo Pharma (diabetes) reducing dosing frequency. and Lundbeck (psychiatric and neurological disorders)). A particular element in Scandinavian success in this area Similarly, new generic production facilities often generate may be 'Medicon Valley', (around Copenhagen and biologics with increased purity from the original, placing Malmö in Sweden), which, along with Cambridge in the pressure on 'discovery generic' manufacturers to perform UK and Basel, is one of Europe's top three biotech clusters additional clinical trials. These, through inconvenient and [56]. a substantial additional expense, are likely to be less risky Page 9 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 Australian pharmaceutical policy makers need to learn the example, new patented drugs seeking PBS listing in con- lessons of the industry renewal policies that have been junction with a genetic test would still need to be evalu- applied, or are being attempted, to achieve such results ated for comparative cost-effectiveness against existing with biologic generics. Breaking the reference pricing link- marketed products (without linked genetic tests). Clinical age between 'innovative' and 'generic' drugs may not be trials are becoming increasingly expensive and pharmaco- useful in this context. genetics could provide a seemingly attractive way of reducing industry dependence on them for regulatory Industrial Renewal: Pharmacogenetics approvals and post-marketing surveillance. The Novartis Another biopharma area where carefully organized poli- Institutes of Biomedical Research has recently been pro- cies, building on existing skills and facility strengths, moting use of biomarkers to select research subjects with could promote Australian industrial renewal, is pharma- the idea of improving the efficiency of pharmaceutical cogenetics (the science of studying genetically-determined clinical trials. Despite cautious present investor interest, responses to medicinal drugs). Based on recent UK and US linking medicines with a genetic test could facilitate valu- studies, about 1 in 15 admissions to Australian hospitals able long term diversification in the Australian bio/nano- are due to or involve adverse drug reactions, many of these pharma industry. directly leading to adverse health outcomes [57]. Such harmful side effects vary between individuals and range Industrial Renewal: Nanotherapeutics from failure to respond therapeutically, to minor illness Medical nanotechnology involves the development of and even death [58]. A few Australian companies are drug/invasive therapeutic device products controllable at already starting to invest in this area. One prominent atomic, molecular or macromolecular levels of approxi- example is Genetic Technologies Ltd, which is licensed by mately 1–100 nanometers. Nanostructures have much Myriad Genetics (USA) to carrying out BRCA breast cancer greater strength, stability and surface area per unit mass genetic screening. Australia, generally, has a strong related than standard materials and those below 10 nm possess skills base in genetic sequencing. quantum effects where size may control, for example, the specific wavelength of emitted light [60]. Predicted developments in pharmacogenetics include (1) recording of individual patient pharmacogenetic profiles Nanotechnology is a rapidly expanding area of medical (2) establishment of prescribing guidelines, that will research and development globally.[61] Over 200 compa- relate dose to genotype and highlight the possibility of nies are actively involved in this area, viewing nanotech- adverse drug interactions (3) development of new drugs nology is having a powerful enabling function that for patients with specific genotypes (drug stratification). enhances the effectiveness and market competitiveness of This latter area could be of particular policy value in the existing health technologies [62]. Peptide nanotubes, for context of Australian biopharma industry renewal. Phar- example, have been investigated as the next generation of maceutical industry interest may extend to 'packaging' antibiotics [63] and as immune modulators [64] Nanom- drugs along with genetic tests and takeovers or licensing of edical applications been investigated in neurosurgery genetic test manufacturers [59]. [65], cardiac surgery [66] and blood disorders [67] Most major pharmaceutical companies have substantial invest- The US FDA's approval of the AmpliChip CYP450 (Roche ments in nanotechnology [68]. and Affymetrix) for in vitro diagnostics represented a sig- nificant regulatory advance for pharmacogenomics Yet, as In Australia, nanomedicine is a rapidly growing industry with 'biologicals,' regulatory changes necessary to facili- sector. Nanotechnology is a priority area for Australian tate uptake of (and public benefit from) such pharmaco- Research Council (ARC) funded research (A$53,013,909 genetic developments have yet to be systematically in 2002–03), many collaborations being promoted by the considered by Australian health policy makers. ARC Nanotechnology Network (ARCNN) [69]. Starp- harma, for example, (with US-based Dendritic NanoTech- Privacy laws, for example, will need to mesh with the nologies) and Australian government and US National capacity of a simple finger prick, mouth wash, or hair Institutes of Health (NIH) funding, is developing sample to obtain genetic information enabling a doctor to VivaGel™ as an HIV-prevention dendrimer-based microbi- rapidly determine the likelihood of a drug's efficacy and cide gel. VivaGel™ represents bottom up nanotechnology side effects. If pharmacogenetics is to minimize drug and involves a well-defined synthetic polymer, made by expenditure by reducing wastage and simplify post-mar- adding monomers in a branching manner, binding to keting surveillance, then both Therapeutic Goods Admin- glycoproteins on the surface of HIV and thus preventing, istration (TGA) and the PBS officials will need to be in a dose-response manner, HIV binding to receptors on actively involved in policy development. Under defini- T-cells. VivaGel™ is the world's first dendrimer-based drug tions of reference pricing prior to the F1-F2 categories, for to be approved for human trials by US FDA (phase 1 study Page 10 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 completed 2004). pSividia has developed Brachysil™ a ing will be critical to ensuring that the Australian public nanostructural, porosified, biosilicon platform technol- obtains value for its nanomedicine expenditure. A recent ogy for controlled drug delivery and already have a licens- European Science Foundation report recommends that ing agreement for it with a US company based in China. the flexible enabling functions of nanotechnology in medical applications may be lost if coordinated policies At present, however, most regulatory concern in Australia facilitating investment and efficient regulation are not seems to be focused generally on the safety of nanotech- developed [77]. One of the best models for facilitating nology, rather than on facilitating venture capital for a community value from nanotechnology research may be nanomedicine industry systematically focused, through the Nanotechnology Victoria (Nanovic) consortium (Uni- good regulatory architecture, on public health outcomes. versities of Melbourne, Swinburne and RMIT with the A major concern is that highly reactive and mobile engi- CSIRO) receiving start-up funding from the Victorian neered nanoparticles (ENPs) may present unique health Government [78]. risks when used in medical applications [70]. There are currently no effective methods to monitor ENP exposure Sustainable Industrial Renewal and Global Public Goods Global public goods (increasingly defined in global regu- risks [71] Research suggests that the health risks of nanos- tructures cannot be predicted a priori from their bulk latory debate in a broader sense than under traditional equivalent. In animal studies, short term exposure to economic theory) provide benefits from which no indi- ENP's has produced dose-dependent inflammatory vidual should be excluded. They span national, cultural responses and pulmonary fibrosis. Some engineered nan- and generational boundaries, their consumption theoret- oparticles have also been shown to preferentially accumu- ically not creating rivalry. Some are 'merit goods' in the late in mitochondria and inhibit function, others may sense that their promotion and protection supports values become unstable in biological settings and release ele- such as justice and equity, as well as international human mental metals [72]. rights, and requires that contrary influences emerging from pro-monopolistic markets be overridden. Examples Despite such findings, the US FDA appears to have of global public goods include not only clean air, peaceful assumed that macroscale safety may translate to that at the societies, control of communicable disease, transport and nano level [73]. A nanoparticulate reformulation of an law and order infrastructure, but systems of universal (tax- existing drug, for example, has been deemed by the FDA payer-funded) health care and pharmaceutical research not to require an Abbreviated New Drug Application and development oriented by percentage GDP prize funds (ANDA) because bioequivalence was established [74]. towards the global burden of illness. Some of these require international co-operation for their production These developments suggest that the Australian govern- (particularly safety and cost-effectiveness evaluation of ment should take a stronger long term policy interest in new health technologies). Emphasis upon such goods public benefit-focused industry renewal in the nanothera- highlights the need to seriously consider sustainability in peutics sector. A recent Senate Inquiry recommended cre- the regulatory architecture of markets. ation of a working party to consider creation of a distinct, permanent regulatory body for nanotechnology [75]. The Affordable access to essential medicines is increasingly latter approach was taken with gene technology under the recognised as a global public good, providing an essential Gene Technology Act 2000 (Cth) [76]. Such a broad licens- precondition to a reasonable quality of life for a signifi- ing approach, encompassing regulatory industrial, agri- cant proportion of every human population, being sys- cultural and therapeutic applications may not be the best tematically underprovided by private market forces and vehicle for encouraging renewal in the uniquely complex imposing burdensome international externality costs on Australian bio/nanopharma sector. third parties [79]. Further, affordable access to essential medicines appears to be emerging, both academically and Appropriate regulatory changes could favour the develop- in practise, as a core part of the international right to ment of a biopharma industry where existing off-patent health in article 12 of the International Covenant on Eco- products are re-badged to become more profitable with a nomic, Cultural and Social Rights (article 25 of the Universal more effective nano-based delivery system. On the other Declaration of Human Rights). One recent manifestation hand, hasty regulatory approval of nano-versions of exist- was the Doha Declaration, which affirmed the capacity of ing drugs (as is the case with generic 'biologicals') could WTO members to use to the full exceptions in the Trade place expenditure burdens of public health systems and Related Intellectual Property Rights agreement ("TRIPS") risk damage to public health. In this context, given the to promote public health by facilitating access to afforda- presumptive claims that nanomedicine manufacturers ble medicines [80]. It is also specifically referred to in arti- will make for reimbursement reward of their 'innovation', cle 14 of the UNESCO Universal Declaration on Bioethics the maintenance of a robust system of PBS reference pric- and Human Rights [81]. Page 11 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 Global public goods, both in general and as directly China's (largely generic) pharmaceutical industry totalled related to the bio/nanopharma sector, in the immediate US$21 billion [85]. China's pharmaceutical market aver- future, will have to be financed at the national level, with ages 18–20% growth over the last twenty years, signifi- sector specific incentives. This will probably remain the cantly higher than US and European growth over the same case, at least until universal threats such as bioterrorism, period. By 2020, China will have the world's largest phar- emergent infectious disease and climate change, create maceutical market. sufficient political will for reform of world governance structures This may particularly be so if the claims of inno- The Australia-China Trade and Economic Framework was vation by such technologies are undermined by their signed during the visit of Chinese President Hu Jintao in largely unaccountable expense [82]. Safety and cost-effec- October 2003. This Framework sets the direction for the tiveness evaluation of health technologies is one global trade and economic relationship in the long term and public good that would benefit greatly from improved included a commitment to conclude a Free Trade Agree- financial and administrative co-operation between ment feasibility study by 31 October 2005. Its purpose is nations, linked with enhanced democratic involvement to enhance trade, investment and economic cooperation [83]. Reference pricing provides a crucial mechanism in and build on Australia's commercial relations with China this context, by encouraging a market focus on objectively in a number of key sectors. It also commits the parties to demonstrated improvements in health outcomes. Fortu- further trade liberalisation. nately, Australia's National Medicines Policy has already established aims broadly in accord with this public goods One of the most common models for pharmaceutical focus on industrial renewal. development in China involves joint ventures with local partners facilitating regulatory approval and market share. One specific strategy is for public goods-focused research- China currently produces over 1,350 medicines in 24 ers to incrementally innovate patented drug molecules classes. Almost all these are what may be described as and, by institutionally treating the new patent as a public "generic" drugs. In recent years, China has patented only good, make the product available cheaply to poor patients two brand name or 'innovative' drugs (arteannuin and in the developing world. This is an approach that if sup- sodium dimercaptosuccinate) that have received interna- ported by appropriate policy, might greatly enhance the tional marketing approval. Yet China has strong ambi- commercial prospects of companies in the Australia bio/ tions in the innovative drug field, being hampered only by nanopharma sector. a present lack of access to drug design and regulatory expertise such as that possessed to a level of international English medical researchers for example, recently rede- excellence by Australia. signed an effective but extremely expensive Roche drug for hepatitis C, called pegylated interferon, so that its large China acceded to the WTO on December 11 2001. In sugar molecule (which increased its half life) on the doing so, China agreed to restructure its domestic legal inside, rather than the outside. The Shantha corporation system to, amongst other things, comply with the obliga- in Hyderabad, which had made the world's first cost-effec- tions of the WTO TRIPS agreement. Late in 2002, a year tive hepatitis B vaccine (and was already making the orig- after its accession to the WTO and agreement to abide by inal interferon), agreed to make the new medicine with TRIPS, China passed its Measures for the Administration of the Indian government subsidising the necessary pre reg- Pharmaceutical Registration (for Trial Implementation) and ulatory approval clinical trials. The UK scientists are also Implementing Regulations for the Law of the People's republic working on an innovative 'ethical pharmaceutical' for vis- of China for the Administration of Pharmaceuticals. Under ceral leishmaniasis (kala-azar), a fatal disease in Brazil, these laws, once a pharmaceutical has been approved for Bangladesh, India and the Sudan transmitted by sandflies domestic production the State Food and Drug Adminis- [84]. tration (SFDA) will not permit other companies to pro- duce or import it for "monitoring periods" of 3–5 years. Industrial renewal in the Australian pharmaceutical The chief purpose of these "monitoring periods" is to industry will not occur without robust competition check for side effects, but of course it also accords a valu- between manufacturers and ingredient suppliers in a reg- able period of market exclusivity. A 'generic' manufacturer ulatory environment that favours public goods. This being seeking market entry makes an application to provincial so, the lack of interest shown by the existing Australian drug authorities, who arrange on-site testing of samples. generic pharmaceutical sector in the China-Australia Free The SFDA will then conduct a comprehensive review, Trade Agreement is remarkable. before deciding whether to issue a Pharmaceutical Pro- duction Permit. The procedure is similar for the issuing of China is one of the world's largest manufacturers of a Pharmaceutical Processing and Export Approval Docu- generic pharmaceuticals. In 2001, the sales income of ment. Page 12 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 When interviewed as part of an Australian Research Coun- impressed by the socially and scientifically sound eco- cil grant in 2005, senior representatives of the generic nomic incentives offered by Australian PBS evidence- pharmaceutical industry in Australia appeared concerned based cost-effectiveness and reference pricing system, that to deny market access to Chinese products, ostensibly on article 5.2 of the KORUSFTA permitted South Korea to safety and quality grounds. This cannot be a sustainable establish a PBS-like reimbursement system for pharma- regulatory ambition, as the Chinese generic industry ceuticals or medical devices where the amount paid was develops and is unlikely to be in the long term national not based on 'competitive market-derived prices'. That interest of the Australian public. China is emerging as a article indicated that if it did so, then amongst other great potential market for Australian biotech and nan- things, it had to 'appropriately recognise the value of pat- otech pharmaceuticals. pSivida Ltd, for example, an Aus- ented pharmaceutical products' (article 5.2 (b) (i)). Arti- tralian listed public company with a substantial cle 5.1 (c) and (e) respectively echoed PBAC-type shareholding in pSiMedica Ltd (UK), has patented in evidence-based pharmcoeconomic analysis by referring to China its nanotech silicon drug delivery system (BioSili- 'sound economic incentives' as a method of facilitating con™). The China-Australia Free Trade Agreement offers access to patented medicines and 'transparent and Australia an opportunity to share its pre-eminent regula- accountable' procedures as a means of promoting innova- tory strengths in safety, quality, efficacy (through the tion [92]. TGA) and cost -effectiveness analysis (via the PBAC) with China, in return for enhanced access for its bio/nanop- A major report in the UK has also recommended the PBS harma products to the Chinese market. In time this could evidence-based cost-effectiveness system linked to a cen- become a stepping stone to a multilateral treaty on safety tral government price negotiation as a model for that and cost-effectiveness assessment of new health technolo- nation [93]. Interest is gathering in the US for a similar gies [86]. This background makes it remarkable then that linkage of health technology cost effectiveness analysis discussion about generic pharmaceuticals appears not with central government price negotiation [94]. even to have been raised as a topic of discussion in nego- tiations related to the China-Australia Free Trade Agree- Biosecurity is also an important global public good with ment [87]. important connections to the biopharma sector. At the time of the anthrax biosecurity threat in the US, it became Recent obligations acquired under the Australia-US Free clear that protection of the population in many developed Trade Agreement (AUSTFA) may play a problematic role nations may be crucially dependent on the capacity of in the process of industrial renewal in the Australian bio/ generic manufacturers to rapidly increase and stockpile nanopharma sector. So-called 'Fast Track' provisions necessary pharmaceuticals, if necessary under a compul- require discussion between the US FDA and the Australian sory license (Thailand, for example, recently confirmed it TGA about making "innovative" pharmaceutical products would issue compulsory licences permitted under the more speedily available (Annex 2C.4). It remains contro- WTO TRIPS agreement, to buy generic versions of Sanofi- versial whether these will be carved out from the New Zea- Aventis' anti-blood clotting pharmaceutical Plavix and land obligations under the proposed Australia-New Abbott's anti-HIV/AIDS medicine Kaletra). Zealand Therapeutic Products Agency [88]. There are also obligations acquired under the AUSTFA requiring 'valu- As the Australian pharmaceutical industry increasingly ing' of pharmaceutical "innovation" through either the researches biologic products, these may (rarely) produce operation of "competitive markets" (the US position, unintended outcomes that create biosecurity implica- requiring an enhanced role for competition and anti-trust tions. An example is the unintended development of a regulators) or "objectively demonstrated therapeutic sig- highly virulent and dangerous mousepox IL-4 [95] or bot- nificance" (the Australian position, supporting an ulinum in milk [96]. enhanced role for the PBAC in ensuring that the PBS expenditure on new PBS-listed products is commensurate In 2005, scientists from the US Armed Forces Institute of with evidence-based assessments of their comparative Pathology published the full sequence of the highly viru- community value and cost of development) (Annex lent strain of influenza virus that caused the Spanish influ- 2C.1)[89]. The "generic" (rather than "innovative") status enza pandemic in the winter of 1918–1919 and killed up of biologic and nanoparticulate versions of off-patent to 50 million people worldwide [97]. Further work based drugs will be particularly difficult to assess [90]. on the sequence led to the synthesis of an influenza strain which showed a high virulence and mortality rate when South Korean negotiators of the Korea-US Free Trade tested in mice [98]. Such developments confirm that Agreement (KORUSFTA) appear to have taken a much recent developments in genetics, genomics and other stronger stance in favour of their emerging biologic gener- areas of pharmaceutical development might (intention- ics industry [91]. The South Korean government was so ally or unintentionally) create biosecurity hazards [99]. A Page 13 of 16 (page number not for citation purposes) Australia and New Zealand Health Policy 2007, 4:9 http://www.anzhealthpolicy.com/content/4/1/9 National Centre for Biosecurity (NCB) has been estab- This article has examined the proposition that Australian lished at the Australian National University to coordinate medicines policy has not been sufficiently supportive of a scientific, legal and policy expertise in this area. high value-added generics industry, or mechanisms facili- tating that such as PBS reference pricing. It has argued that The capacity of Australia to respond to a natural disaster such policy has not involved a systematic plan for sustain- or bioterrorist threat may crucially depend on our capacity able industrial renewal of the Australian bio/nanopharma to increase supply of blood and blood products. The on- sector in the context of the challenges such as 'biologics,' shore capacity of the Commonwealth Serum laboratories nanotherapeutics, pharmacogenetics, more globalised (CSL) Pty Ltd is likely to play a crucial role in such a rapid health technology regulatory assessment and biosecurity. response situation. Continuance of the CSL monopoly in It has shown made a reasonable case that the principles of this area has been challenged by an AUSFTA side-letter the National Medicines Policy have not been consistently that creates a mechanism for opening up the area for com- applied in this context and that the integration therein of petitive tender [100]. It will also depend upon Australia extra-patent reward of innovation needs to be more sys- possessing a sophisticated local generic manufacturing tematically evaluated. capacity capable of responding to a compulsory license in a national emergency. There is presently a critical window to shape the regula- tory architecture for sustainable industrial renewal in the The Commonwealth Government Review of Australia's Australian bio/nanopharma industry. Australia for the Plasma Fractionation Arrangements, after an exhaustive time being, though having some cost disadvantages rela- study of European and US arrangements, concluded that tive to comparable economies, has several non-cost overseas fractionation of Australian plasma would involve advantages particularly in its skills base and safety and significant transitional costs ($A75million) and because cost-effectiveness regulatory systems. The crucial policy of yield considerations, there would be the potential for task, over the next decade, may be to identify the critical an ongoing shortfall in the supply of IVIg and other high-efficiency niche bio/nanotech. production areas that plasma derived products. The Review also found major should be consistently and systematically encouraged to potential supply chain risks in overseas fractionation. The meet the specific long term goals of the Australian people. Review recommended that the Federal government main- In this respect, the venture capital evolution of a public- tain the reservation exempting plasma fractionation serv- consortia model such as 'Nanovic' may present significant ices from the government procurement provisions of advantages. So too may, the retention and strengthening Chapter 15 of the AUSFTA. It recommended that the Fed- of PBS reference pricing as an important fiscal lever that eral government support CSL Bioplasma in this area in promotes genuine and sustainable market competition, as part because of the crucial role that company could play well as Australia's promotion in international fora of a in Australia's biotech industry renewal [101]. In coming health technology safety and cost-effectiveness assess- to such conclusions the review undoubtedly assisted to ment treaty. It cannot be assumed that the long term inter- focus industrial renewal in this sector not only on positive ests of all Australian citizens and the goals of public health outcomes, but public goods-supporting multinational corporate interests in the presently consti- processes. tuted patented pharmaceutical sector, will long coincide. Conclusion Acknowledgements The author is director of Australian Research Council (ARC) grants into (1) The potential strengths of the Australian bio/nanopharma the impact of international trade agreements on Australian medicines policy sector may be summarised as: (1) high levels of skills and (with Prof. David Henry and Prof. Peter Drahos) and (2) safety and cost- expertise in basic medical research and healthcare in Aus- effectiveness analysis of nanomedicine. tralia. 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Australia and New Zealand Health PolicySpringer Journals

Published: Jun 1, 2007

References