Australia: Where Value Beats Cost
In some ways the Australian medicines industry is going through the same restructuring and challenges as the industry is going through globally: the country deals with patent cliffs, companies are cutting back staff, an ageing population forces the government to rethink healthcare expenditures, and big originator companies are restructuring. And just like internationally, that is forcing the industry to rethink traditional ways of doing things. Only, the Australian pharmaceutical industry has been rethinking its role in such an innovative way that it is slowly floating from down under to the center of attention of the global industry.
During a visit to Australia in February 2012 Sir Andrew Witty, then still in his tenure as CEO of GlaxoSmithKline, quoted the Australian industry as an example of how the global industry should modernize itself and win back society’s belief in its readiness to change, “whether that is through employment, contribution to savings, or delivery of remarkable medicines.”
Its pharmaceutical manufacturing industry, not too long ago seemingly doomed to disappear as rationalization reigned, is reinventing itself as a high value added manufacturing hub. With USD4.19 billion it is now Australia’s biggest exporting industry, before the car and wine industry, the country’s traditional export strongholds. AstraZeneca for instance recently decided to invest USD80 million in its existing Australian production capabilities to provide the Chinese market with its asthma treatment medicine. “For many lower value added manufacturing processes decisions are made every day to move manufacturing to India as an alternative to producing in Europe or Australia,“ AstraZeneca’s managing director Mark Fladrich said. “The opportunity for AstraZenecahere is that technology that is used to support our medicines is complicated,” he continued.
Furthermore, the notion of a disconnect between the country’s research capabilities and big pharma’s research investments in the country, oft-heard when Focus Reports first visited Australia in 2008, is quickly turning obsolete. While in the past big pharma mainly tended to focus on leveraging Australia’s clinical research capabilities, today the world’s innovative companies are roaming Australia’s research institutes and its Melbourne-based biotech industry to find ammunition for their pipelines. In 2012, the combined worth of Australia’s publicly listed biomedical companies was actually higher on a per capita basis than is the case for such companies in the US according to Mark Metherell, health correspondent of the Sydney Morning Herald.
Such promising developments led chairman Mark Masterson of Medicines Australia, the association representing the discovery-driven pharmaceutical industry in Australia, to unfold a highly ambitious agenda. “The vision is to double our manufacturing output from AUD7 billion (USD7.34 billion) in 2012 to AUD14 billion (USD14.68 billion) over the next decade and to establish a number of highly specialised bio-manufacturing plants,” Masterson said in December 2012. “Double our exports from AUD4 billion (USD4.19 billion) to AUD8 billion (USD8.39 billion); double our R&D investment from AUD1 billion (USD1.05 billion) to AUD2 billion (USD2.1 billion); creating many more high-skilled jobs and increasing the number of Australians accessing clinical trials to 30,000.”
Some doubt whether the nation is sufficiently aware of the value of this highly innovative industry to generate the support needed to realize these plans. Making the importance of the industry clear can be especially challenging against the backdrop of a massive natural resource-driven economic boom that made Australian per capita GNP overtake the US’ in 2011 (USD49.130 for Australia and USD48.620 for the US) according to World Bank data and that led the International Monetary Fund in April 2012 predict that Australia would be the best performing major advanced economy in the world over the next two years.
“We need to keep our policy makers understanding that booms in minerals and coals come and go; we need to balance that with industries built on brains, and the Australian medicines industry has shown that it can fulfill a balancing role,” professor Warwick Anderson, CEO of the National Health and Medical Research Council, Australia’s medical research-funding organ that is responsible for handing out AUD0.8 billion in subsidies in 2012.
Paradoxically, today’s biggest challenge to the Australia’s pharmaceutical industry indirectly comes from the nation’s rapidly ageing population. The Australian government is looking to contain soaring health expenditures through reform of its pharmaceutical reimbursement system.
I. A DOUBLE-EDGED SWORD NAMED PBS
In the case of Australia, the reforms of this reimbursement system, the Pharmaceutical Benefits Scheme (PBS), have been about control of the supply chain to combine a rise in generics share with a drop in its prices in order to create headspace for reimbursement of new innovative medicines. Whether the PBS reforms are reaching their goals is up for serious debate. Many industry players are asking whether the government can afford to use the efficiencies that it has gained from generics to increase spend on new products.
One of the industry representatives that questions the reforms is Robert Hendriks, managing director of Genzyme. “Statistics of PBS approvals of innovative medicines show that a decreasing percentage of submissions are approved. The central question today is: should the focus be on cost containment to the extent we see today, or should the focus shift more towards assessing real health outcomes?”
Genzyme encounters a specific reimbursement challenge with its rare disease portfolio, which it has to apply for reimbursement on the life-saving drug program. The life-saving drug program has a set of criteria, and one of which is showing substantial life-saving benefit. This is extremely difficult for products that treat rare diseases. “We treat few patients, which makes it difficult to set up clinical trials, certainly when they are life-saving,” said Hendriks. “Is it ethical to have a double blind randomized placebo-controlled trial? You might consider that at the beginning of the development of your drug, but if you are further down the path and clinicians are convinced that your drug works, how are you going to set up a trial that would allow patients to shorten their life-span?”
Such hard-to-meet standards across Australia’s reimbursement programs could even put at risk future investments of research-driven pharmaceutical companies, thinks Hendriks. “I sincerely hope that government understands the harm it does to Australia’s image as an attractive investment destination in the eyes of the global pharmaceutical industry,” Hendriks said.
Already, job losses of Medicines Australia-members in 2012 number around 300 on a total of 14.000 employees, with five major companies affected: Sanofi, Pfizer, MSD Australia, Eli Lilly and GlaxoSmithKline. The redundancies are considered to be related in part to medicines coming off patent and in part to price cuts that resulted from the latest PBS reform.
“Whilst the stated aims of PBS reforms related to efficient generics pricing and transparency to ensure cost-effective pricing are well on the way to being realised, the structural reforms related to serving the future needs of patients with the introduction of new innovative medicines still leave much room for improvement,” said Albert Spanos, general manager of Celgene Australia, “both from a pricing and timing perspective, which is definitely having a material impact on industry investment in Australia, illustrated by the loss of 300 industry jobs in 2012.”
In a response to industry criticism, Dr. Susan Hill, chair of the Pharmaceutical Benefits Advisory Committee (PBAC), the statutory committee that advises the Ministry of Health and Ageing as to what drugs will be listed on the PBS, explained how the reforms are changing the demands to the industry. “It is going to be demanding of the industry, because they will have to put a lot of effort into clinical trials that actually show that their products are really better, and that difference in efficacy or effectiveness can be translated into a difference in price,” adding that “The usual drug development by industry is incremental in its gains and development, and that is going to be a real challenge.”
Looking at the growth of expenditure through the PBS, about one percent in an economy growing 3.2 percent in 2011, the reforms already seem to have the intended effect. Nonetheless, the end is not in sight. “I suspect that the government is going to look for a lot more savings before it allows more expenditure,” said Dr. Hill.
And the Key to Success is…
In this environment – “one of the most demanding in the world when it comes to data, cost-effectiveness prove, etc.”, according Veronique Toully, managing director of UCB Australia and former vice-president in charge of pricing & reimbursement – a player’s competitiveness is determined by several factors.
“The companies that have had loss of exclusivity issues, have a concentrated portfolio, and do not have a strong pipeline are really struggling,” said Any Jackson, managing director of IMS Australia. “Those three dynamics together all hitting in one go plus a relatively unfavorable economic environment provide serious challenges.”
“Still, there are companies that are growing very well in this market, mainly companies with a specialist portfolio or from generics,” according to Jackson. One example of a company that is doing well in the changing environment is Novartis. Recently appointed country manager Jason Smith is confident that he will be able to lead the company to the top of the commercial rankings on the back of Novartis’ research success and its pipeline.
Except Toyota, no other company worldwide invests more money in R&D than his company. “This commitment to research allows us to focus more and more on unmet medical needs in the therapeutic areas in which we have experience and ensures the longevity of our robust pipeline,“ said Smith. “That means that as we bring newer products to market, they should be more likely to meet the bar for approval and reimbursement in a country like Australia.”
On top of that, Novartis is developing products with companion diagnostics which are used in the clinical development process, which according to Smith helps to personalise treatment, to identify those who respond well and those who don’t respond well to treatment, which then means discovering better patient outcomes at the outset.
Piloting Australia into the Asian Century
While one could argue that PBS reforms are limiting access to the newest innovations to the Australian pensioner after a hardworking, taxpaying life, PBS reforms are also forcing the industry to do something totally new rather than tweak existing products.
“Registration and reimbursement processes in Australia should be approached as a trigger for creativity, to come up with ways to successfully commercialize your drug,” said George Varkanis, vice-president Asia-Pacific for Celgene. Australia was purposely meant to be a pioneer market for Celgene in Asia-Pacific, a role that it has fulfilled with verve
: Australia was among the first in Celgene’s global portfolio to successfully launch key brands Revlimid and Vidaza.
In a success story similar to that of Celgene, the Australia-affiliate of Belgian chemical company gone biotech UCB was the first in Asia-Pacific to launch the company’s three new brands – Cimzia, Neupro, and Vimpat. “Australia is thus a pilot country in the region,” said Toully.
“Australia is much closer to European markets than to Asia-Pacific markets in the launching timelines and the overall way in which the industry operates,” she continues. “At the same time, because we have this strong geographic link and also because the doctors here have very strong connections with Chinese, Japanese, Korean doctors we are a close partner of UCB affiliates in Asia-Pacific and we can actually share a lot with them and support their launches,” she said.
Preventing Beats Curing
The ageing of Australia’s population and the increasing burden of chronic disease jeopardize the sustainability of the country’s healthcare system at the current levels of expenditure. Government is thus looking at new ways to cut cost. “We see our government encouraging people to look after themselves, advising them to eat healthier, reduce smoking and frequently exercise thus implementing preventative programs,” said Mal Eutick, CEO of Phebra, an Australian company involved in the development, manufacture, marketing and distribution of highly specialized and innovative medicines for the hospital market. “Ultimately, the government could penalize people who do not look after themselves.”
Furthermore, we see people getting more interested in complementary medicines including vitamin and mineral products and the NHMRC providing a significant amount for rigorous scientific research in complementary medicines,” Eutick continued.
But taking a greater role in maintaining health is a big challenge for many. “Who has time for a balanced diet, complete with organic fruits and vegetables?” asked Radek Sali, CEO of vitamin company and Australian success story Swisse.
Multivitamins help with the prevention of everything from cognitive decline through to PMS and heart disease according to Sali, and he therefore pleads for stronger commitments of both the vitamin industry and government to clinical research in order to bolster awareness of the crucial role of vitamins in preventing disease. “It is a responsibility for the natural health sector in general to increase the evidence base.”
Swisse has over twenty trials published, unique for a natural health company. Sali plans to spend one percent of total revenue on clinical trials, which comes down to a minimum of $20 million over the next five years according to the company’s revenue projections.
One of the hurdles that the vitamin industry faces is a modest commitment of government. Of the $800 million the government spent on medical research and clinical trials in 2011, $600,000 went to natural health, while the industry represents 14 percent of the total health market, according to Swisse’s data.
“I do feel that we need more government support in clinical trials,” said Sali. “We have only started this journey and are still structuring up with the right people to drive outcomes in this area, but there are positive signs coming government.”
II. THE DISAPPEARING DISCONNECT
With South East Asia’s seemingly never-ending boom expected to drive the numbers of the Asian middle class from around 500 million to 3.2 billion by 2030, figuring out how to optimally capture the massive opportunities that come with it is one of the hottest topics on Australia’s national agenda.
While bringing ample opportunities, the explosion of Asia’s markets & middle classes also causes less favorable developments, such as an inevitable descent of Australia down the global ladder of most sizable pharmaceutical markets. “Australia still stands up very well against other mature markets across the dynamics that IMS looks at, but the issue is that it does not stand up as well as it used to in terms of growth potential and market issues,” said Andy Jackson, general manager of IMS Australia. “The investment divide is already there: the pharmaceutical industry opts for China, India – the Pharmerging markets. The Australian market has grown 6-7 percent on a compound annual growth basis in recent years, while the forecast has dropped to 2-3 percent for the next five years.”
But, “Australia has a very strong R&D capability and is an amazing country for start-ups,” according to Dr. Martin Cross, president of the Generic Medicines industry Association (GMiA). “It is a knowledge-based country, and under-recognized as a matter of fact, and that is to the detriment of many companies that could come here and get really good leads.”
However, this notion of a disconnect seems to be disappearing. Pharmaceutical companies have been concluding many agreements with biotech industry and research institutes for their R&D, demonstrating a set of new relationships that requires sophisticated partnering. “Indeed Australia is considered a high-potential R&D opportunity particularly in the biotech sector, and the secret is out. Many of the world’s top pharmaceutical companies have caught on to the fact that Australia offers a lot of pipeline potential,” said Chris Hourigan, managing director of Janssen-Cilag.
“The quality and the ability to do work that other countries cannot do is key,” explained Jason Smith the choice of his company Novartis to invest close to USD40 million in R&D in Australia annually. While part of the money is invested in over 100 clinical trials, Novartis’ research commitment to Australia is no longer limited to the clinical side.
The Swiss drug maker recently announced collaboration with the Brain & Mind Research Institute, one of Australia’s leading neuroscience centres. Through this cooperation, Novartis is supporting the first multi-country analysis of MRI work in its kind in the Southern Hemisphere within the company. Australia is the third country within the group after the US and Switzerland to have this capability.
While discovery-focused research is becoming increasingly popular, the last years have been tough for the clinical research sector. “The last three or four years have been tough, the Financial Crisis has had an impact on the work coming through both from small biotechs into Australia and the overall availability of money to overseas biotechs,” said Craig Rogers, managing director of Nucleus Network, one of Australia’s leading early-phase clinical research businesses. “Also from the big pharma perspective the high Australian dollar has made us less competitive.”
Still, a lot of big pharma and biotech companies like Australia because studies can be done before filing IND, to get patient data before going to the FDA. “Also, all phase I studies can be addressed by the local ethics committee,” Rogers said, “so as long as there is a competent ethics committee with the right scientific subcommittee, they can do the full evaluation to avoid going through a central regulatory process.”