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Jill E. Sackman, PhD, is a senior consultant at Numerof & Associates, Inc. (NAI), St. Louis, MO, www.nai-consulting.com.
The Australian pharmaceutical market offers opportunities for manufacturers despite challenges.
The pharmaceutical industry is grappling with pressures including changing business models, a more competitive market, shifts in customers’ demands (e.g., patients and providers), major patent expiries, shifting technology, constrained budgets, increasing scrutiny from payers and regulators, and fundamental questions regarding the industry’s integrity. Many of these internal and external pressures exist in emerging and developed markets alike, forcing manufacturers to reconsider their approach to bringing new products to market (1-3).
Australia is a country that has challenged pharmaceutical manufacturers in recent years with extensive government reforms in drug pricing, unpredictability around reimbursement and pricing decisions, and other structural changes.
Despite these challenges, the Australian market still offers a number of opportunities for manufacturers. Ongoing changes in Australia’s population and economy have contributed to a shift in the country’s epidemiological profile. That shift has increased the need for more effective population health management practices, and medications that address complex, chronic conditions. Manufacturers will not only find new and expanding target patient populations for their product portfolio in Australia, but also opportunities for broader approaches to managing disease and wellness. And despite some recent setbacks in the growth of Australia’s own biotechnology R&D sector, the country remains a powerhouse for medical science innovations (4).
Understanding these complex market dynamics will be crucial for manufacturers exploring new and existing opportunities for growth in Australia.
Australia Healthcare Market OverviewHealthcare Delivery
According to the Organization for Economic Co-operation and Development (OECD) Better Life Index, Australia’s universal healthcare system should be viewed as one of the best in the world. As a nation, Australians live longer than most populations around the world. Over the past 30 years, life expectancy has greatly increased and preventable deaths have been reduced (5).
The country’s current expenditure in health is modest in relation to OECD standards, and their system aims to guarantee access for essential health services to everyone, regardless of their socioeconomic status. While more Australians are living longer, age and sedentary behaviors similar to those practiced in other developed economies, however, have contributed to mounting rates of chronic conditions such as arthritis, diabetes, heart failure, and asthma among others (see Table I) (6).
To meet the demands of this epidemiological shift, healthcare providers throughout the country need to think about patients and the care continuum in new ways. Of necessity, greater attention is required for the preventive and chronic care needs of patients in defined populations. The Australian Government is playing a role in this paradigm through reform initiatives. Specifically, these initiatives aim to facilitate partnerships to improve care coordination across healthcare settings and throughout communities (e.g., Medicare Locals now being replaced with Primary Care Networks); introduce a national personally controlled electronic medical record; enhance the utilization of home-based care and telehealth technology, and improve medication management (7).
Two other commonly cited challenges of Australia’s healthcare delivery sector include long waiting lists for many hospital medical procedures and the concern there is a shortage of primary-care physicians. This concern is despite the fact that there are more than 43,440 primary physicians compared with 25,400 specialists covering all disciplines (8). Also, wait times for elective procedures are a major concern in many OECD countries. In Australia, median wait times for patients treated have increased over the past decade for a number of common procedures, sometimes significantly (e.g., knee replacement, hysterectomy, cholecystectomy by 32-47%, prostatectomy and hernia by 41-58%) (9). According to the Commonwealth Fund, over the past several years
Australia, along with Canada and the United States have ranked poorly with respect to overall accessibility of appointments with primary care physicians (10).
Healthcare Expenditure and Funding
The country’s healthcare expenditure continues to grow faster than population growth, spurred by societal changes such as population aging, treatment and technology advances, and consumers’ increasing awareness of health-related issues. Healthcare spending in 2013 was an estimated 9.67% of gross domestic product (GDP) (17.4% US/9.4% UK), with two-thirds of the total coming from the government (11).
Over the past decade, total health expenditure has grown in real terms at an average rate of 5.4% per year (11).
Australia’s primary care physicians are funded by the federal government through a long-standing system known as Medicare. Federal and state governments provide universal free inpatient care in public hospitals. The former also subsidizes spending on non-hospital care, such as physician consultation fees. Medicare also pays for medicines provided in public hospitals and those medicines listed on the Pharmaceutical Benefits Scheme (PBS). Under this scheme, patients are required to contribute a co-payment for all PBS-listed prescription medicines with the government subsidizing the balance. Approximately 55.4% of the general population has supplemental coverage through private insurers (12).
Private health insurance offers access to treatment in private hospitals and covers some ancillary healthcare services. However, private health insurance coverage has increased only modestly over the past decade.
Under the notion that Australia’s traditional health system is unsustainable due to rising treatment costs and an epidemiological shift, the government is constantly exploring ways to limit healthcare expenditures. Recently implemented strategies have included shifting costs onto consumers through higher co-payments for PBS-listed medications and reducing physician reimbursement rates for patient visits. In fact, in 2013, government funding of health expenditure fell in real terms for the first time in more than a decade (13).
Australia’s Life Sciences and Pharmaceutical MarketLife Sciences and R&D
Australia is well placed geographically when it comes to pharmaceutical exports given its close proximity to major emerging markets in Southeast Asia. It is, therefore, not surprising that Australia’s life-sciences industry is one of the leading performers in the Australian economy, and each year the industry is the country’s largest exporter of manufactured goods (14).
Approximately 50 global research-based pharmaceutical companies and more than 400 locally-owned medical biotechnology firms and service providers operate in Australia. Together, these organizations generate approximately $3.5 billion in exports each year and invest more than $1 billion in R&D (14).
In the past decade, however, the need for large-scale industrial sites to house research, development, and manufacturing operations in Australia has been greatly reduced. Many companies have moved their manufacturing facilities to lower-cost markets and repositioned their focus within Australia to sales and marketing. The Australian government, however, announced plans to invest in a Medical Research Future Fund (MRFF), which is expected to build to a $20 billion perpetual fund over the next decade (15).
The MRFF investment could strengthen Australia’s position as an essential collaborator and contributor to research in several key therapeutic areas. There is also an opportunity for the MRFF to alleviate manufacturers’ growing concerns over R&D tax incentive reductions, and spark a renewed interest among pharmaceutical companies looking to expand in the region.
Australia’s pharmaceutical market was valued at $22.7 billion in 2013 and is projected to reach $32 billion by 2020 (16).
Major factors driving growth in Australia’s pharmaceuticals market include the increasing elderly population and its associated disease burden, along with rather well-defined regulatory guidelines and the rising prevalence of non-communicable diseases due to an increasingly sedentary way of life.
While the volume of pharmaceuticals provided under the PBS continues to grow unabated, the government has had some success in reducing the rate of growth in the overall cost of the scheme by introducing pricing reforms. Over the past few years, government expenditure on pharmaceutical benefits has sharply declined (see
Figure 1). Government-sponsored reforms have included regular price reductions for individual and groups of products as well as mandatory price disclosures that rely on transparency to limit what manufacturers can charge. Since 2012, the government has reduced the prices of PBS-listed medicines at least eight times, by percentages ranging from 1% to 90% (17).
Figure 1: Year-over-year change in government pharmaceutical benefits
Despite an overall slowing of growth in expenditure on the PBS, spending on high-cost drugs targeting complex diseases such as cancers, HIV/AIDS, and Alzheimer’s is growing rapidly. These high-cost drugs accounted for 20% of the government’s total budget, costing approximately $2 billion in the 2013-2014 financial year (18).
As a result, manufacturers should expect this to be an area that will continue to garner closer policy attention.
For many years, Australian generic medicine price reductions lagged behind those paid by many other advanced countries. A report claims that Australians paid more than $1 billion too much annually for prescription generic drugs (19).
Due to these high prices, generic drugs have captured a smaller share of the market than expected. Nevertheless, a succession of major patent expiries and the introduction of improved price disclosure arrangements are expected to increase generic-drug use and further alleviate pharmaceutical spending.
Market Access in AustraliaRegulatory Approval
In the wake of the recent announcement that work will cease on a joint Australian-New Zealand therapeutic regulator, the Australian Therapeutic Goods Administration (TGA) will continue to regulate the quality, safety, and efficacy of therapeutic goods (20).
The TGA is responsible for granting authorization to market pharmaceutical products in Australia and for inspecting and approving manufacturing facilities.
Despite TGA having consistent approval times for new drugs, the country often lags behind other developed nations in access to new medicines. In an effort to ensure Australians can access new treatments in a timely manner, significant attention is being given to finding ways to accelerate the regulatory approval process under the TGA. The Australian government is currently considering multiple recommendations, including the creation of accelerated approval pathways for breakthrough medicines and increased harmonization with overseas submissions and regulatory bodies in North America and Europe.
Coverage and Pricing
New products that receive marketing authorization from the TGA undergo a health technology assessment (HTA) by the Pharmaceutical Benefits Advisory Committee (PBAC). PBAC is an independent statutory body that assesses clinical and cost effectiveness, as well as incremental cost-effectiveness of individual medicines in comparison to therapeutically similar products. PBAC then makes reimbursement recommendations to the Minister for Health who determines whether the product will be funded through the PBS.
Similar to the UK, HTAs in Australia rely on cost per Quality Adjusted Life Year (QALY) to assess cost effectiveness. Unlike the UK’s National Institute for Health and Care Excellence (NICE), however, PBAC has not set a minimum or maximum QALY limit. On one end, this lack of a defined threshold has opened the door for certain high-cost products. On the other end, without a specified QALY limit, manufacturers are less certain on how reimbursement decisions are reached. For instance, in 125 submissions made to the PBAC between July 2005 and November 2006, positive recommendations were granted for products with less than $15,000 per QALY to greater than $200,000 per QALY (21).
Select medicines targeting treatable rare and life-threatening diseases (e.g., Gaucher disease, Fabry’s disease) and deemed to be clinically effective do not require cost-effectiveness assessments. These products are not covered on the PBS, but rather under the Life Saving Drugs Program (LSDP). To date, 10 products that treat seven rare diseases are available through this program (18).
When a drug is recommended for listing by PBAC, manufacturers are allowed to enter pricing negotiations with the government. Historically, the government has sought advice from the Pharmaceutical Benefits Pricing Authority, Australia’s drug price watchdog, during these negotiations. In an effort to try to expedite the decision-making process in 2014, however, the government decided to abolish this independent group (22).
Pricing negotiations still take into account the advice of the PBAC, particularly in relation to clinical and cost effectiveness, the manufacturer’s proposed price, prescription volumes, the price and use of comparative medicines, as well as information on the product’s costs. Following negotiations, the government may recommend that the proposed price is accepted; further negotiations take place for a lower price or prices within a specific range; or for some products, risk sharing arrangements to be developed and agreed upon.
Snapshot of Coverage Decisions and Managed Entry/Risk-Sharing Agreements
Despite efforts by the government to slow the growth of delivering the PBS, new pharmaceuticals continue to receive acceptance. In fact, the Abbott Government, which gained power in September 2013, has placed an average of 24 new or amended listings on the PBS per month, compared to eight per month added under the previous government (23).
The government’s willingness to add reimbursement products, however, does not extend to all therapeutic areas. As seen in other countries that heavily rely on QALYs or other cost-effectiveness measures, manufacturers of new cancer drugs are increasingly being denied coverage, and even when reimbursement is granted, these products are being adopted more slowly and at lower rates. In fact, the average time between marketing approval and national reimbursement decision for a group of recently developed cancer drugs in Australia was reported to be 518 days (vs. 261 days for all non-cancer compounds) (24).
More broadly, the high prices requested by pharmaceutical companies have led the government to shift some of the financial risk to manufacturers through implementation of managed entry and risk-sharing agreements. As observed in other major markets, including the United Kingdom, most managed-entry agreements that have been implemented between manufacturers and the Australian government are non-outcome based agreements (e.g., price volume arrangements and rebate arrangements). For instance, in 2013, there were at least 71 special pricing arrangements in place, and approximately one-third of these arrangements involved high-priced cancer or immuno-modulating drugs (see Table II) (25).
Similar to other markets, health outcome-based agreements have been less common; however, they still remain prevalent. In 2013, 28 medicines were subject to documentation of adequate benefit by some appropriate clinical or biological test for continuation of treatment (25). These drugs included the tumor necrosis factor (TNF-alpha) inhibitors for rheumatoid arthritis, Crohn’s disease, and severe psoriasis as well as tyrosine kinase inhibitors for several types of cancer.
Finally, the PBAC appears to support the implementation of risk-based schemes linking product reimbursement to a requirement for real-world data collection and analysis. To date, however, these types of arrangements have been rather slow to materialize in Australia, a trend observed in other countries as well. In 2012, ipilimumab was recommended for reimbursement for the treatment of melanoma subject to a risk-sharing arrangement (26).
Under this arrangement, long-term overall survival benefits would be monitored through a registry and Bristol-Myers Squibb would be required to rebate “the cost difference in performance between observed versus predicted benefits” (26). While the listing was officially announced in 2013, no additional details have been released on any coverage with evidence agreement.
Implications for Manufacturers
Government-driven price control strategies, greater scrutiny by HTA bodies, projected increased use of generic drugs, and the emergence of risk-based contracting are not necessarily new trends for manufacturers, nor are these trends unique to Australia. In fact, manufacturers are likely already addressing many of these challenges in other markets such as the US and the European Union. There are some important implications that need to be reinforced, however, for manufacturers looking to capture the long-term opportunities of this market and continue gaining coverage for new medicines.
The average time from regulatory approval to PBS listing is often cited as a major challenge for manufacturers in this particular market. The opportunity to resubmit applications following a negative decision keeps the door open for manufacturers’ products, but also can lead to multiple rounds of submissions before coverage is granted. While manufacturers may not be happy until a more rapid process for coverage decisions is established, a recent independent review reported that the reasons most commonly cited for not recommending an application were inadequate clinical and/or cost-effectiveness evidence provided in the submission (27).
Therefore, even though some aspects of the review process are outside manufacturers’ control, these companies do have the power to conduct a comprehensive review of all data generated and confirm that their product is both clinically and economically better than what’s already available; decreases mortality and/or morbidity; makes the care pathway more efficient; and/or reduces the total resources per patient. If robust evidence supporting these claims is lacking, manufacturers will need to rethink their pricing strategy.
Negative coverage decisions are also increasingly hampering the market potential for new and expensive drugs, particularly in cancer. While manufacturers and advocacy groups have been lobbying for the country to adopt a separate fund to fast-track access to cancer drugs, no actions have been taken yet to do so. Moreover, with the recent decision in the UK to scale back their cancer drug fund, the likelihood of Australia setting one up seems low. For now, manufacturers will need to rely on the data described previously herein that represent hard, real-world evidence to back up their claims.
Finally, irrespective of the market, manufacturers have traditionally struggled to make the transition from solely being a goods producer to a service provider. In Australia, providers are increasingly pursuing strategies that focus on treating aging patient populations suffering from chronic diseases. Pharmaceutical manufacturers will need to engage differently with providers and find ways to help them manage their patient populations. Manufacturers have opportunities to help providers stratify populations for different risk profiles or treatment responses to better manage scarce resources.
One way for manufacturers to bring their disease expertise to bear is through offering service wraps around a particular product (28).
These services generally seek to promote adherence resulting in better health outcomes for providers and patients and improved effectiveness and increased sales for manufacturers. Furthermore, manufacturers that are able to demonstrate ownership of a therapeutic area through a portfolio of effective products and services may be in a better position to consider sharing risk for patient outcomes.
The authors would like to thank Dr. Henry Glennie for his contributions to this article.
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21. K. Markarounas-Kirchmann, “Predicting Successful Listing of Pharmaceuticals on the PBS,” Presentation at the 6thWorld Conference on Health Economics, iHEA 2009, http://kmchealthcare.com/doc/ihea_poster_presentation.pdf
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23. Senate Community Affairs Legislation Committee, Official committee Hansard, op. cit., p. 86. Accessed March 6, 2015.
24. IMS Institute, Impact of cost-per-QALY reimbursement criteria on access to cancer drugs, December 2014, www.imshealth.com/imshealth/Global/Content/Corporate/IMS%20Health%20Institute/Insights/IHII_CPQ_Impact_on_Access_to_Cancer_Drugs.pdf, Accessed March 16, 2015
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26. Pharmaceutical Benefits Advisory Committee, November 2012 PBAC Outcomes-Positive Recommendations, http://www.pbs.gov.au/info/industry/listing/elements/pbac-meetings/pbac-outcomes/2012-11/positive-recommendations, accessed March 5, 2015
27. Commonwealth of Australia, Independent Review of the Impact of Pharmaceutical Benefits Scheme (PBS) Cost Recovery, November 2011, www.pbs.gov.au/publication/factsheets/independent-review-PBS-cost-recovery.pdf, accessed March 16, 2015
28. Numerof & Associates, Inc., “Capturing the Value from Value-Added Services,” PM360, Nov. 21, 2014, www.pm360online.com/capturing-the-value-from-value-added-services/
About the Authors
Jill E. Sackman, DVM, PhD, is senior consultant, and Michael Kuchenreuther, PhD, is research analyst, both at Numerof & Associates, Inc., St. Louis, MO, www.nai-consulting.com.
Article DetailsBioPharm International
Vol. 28, No. 6
Citation: When referring to this article, please cite it as J. Sackman and M. Kuchenreuther, “Market Access Outlook for Australia,” BioPharm International 28 (6) 2015.