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Industry Insight – A Year Of Transparency And Contraction

Early in the year, the industry appeared to maintain the status quo as the MOU continued to provide a certain measure of predictability and certainty even as the PBS deferrals issue dragged on. The 2012 Federal Budget left the PBS largely untouched. No new reforms were announced, there were no tangible barriers to the listing of new medicines announced nor was there an increase to the patient co-payment. Even changes to the R&D tax credit system that the Government was still considering in the weeks leading up to the budget were absent. This was the third consecutive Federal Budget containing, thankfully, no surprises for industry.

A visit from the GSK Global CEO Sir Andrew Witty and the continuation of the Medicines Australia branding exercise “The Australian Medicines Industry” portrayed the industry in a positive light. A boost for industry in the first quarter, right up until the announcement that GSK was fined US$3billion – the largest ever fine for a pharma company – for promoting some of its products ‘off-label’. And they are not alone; in the past four years big pharma companies have been fined about $13 billion to settle charges of misleading marketing. Consequently, the issue of transparency has resurfaced with Medicines Australia being criticised for not being as transparent as some would like. The recently convened Transparency Working Group will no doubt continue in 2013 to grapple with the prickly issue of naming individual recipients of industry sponsorship.

From a business perspective, there is no doubt that this year I have seen significant industry contraction, brought about by a combination of the deferral of PBS listing of new medicines, ongoing patent expiries, and extended and accelerated price disclosure causing the largest single drop in drug prices on April 1st. Clearly, the patent expiry of Lipitor has impacted on the Pfizer bottom line. But Pfizer is not alone in this as drug prices fall and revenues across the industry decline. My impression is that the industry is trying very hard to move past the patent cliff mindset and is now looking towards transforming operations to focus on core business. I expect to see organisations continue to adapt and evolve, whilst incorporating outsourcing in their work plans and budgets as they attempt to be more efficient, rebuild revenues and maximise return on investment.

2012 saw the introduction of some significant new faces in the industry. Mark Masterson joined Medicines Australia as Chairman, the TGA welcomed a new National Manager, John Skerritt, and David Quilty takes the helm at the Pharmacy Guild this month. It will be interesting to observe the leadership within and collaboration between these three important organisations going forward.

Looking towards 2013 it is clear that the medicines industry will narrow its focus towards the post-MOU1 environment and a possible MOU2. PBS sustainability will continue to be central to discussions between industry and government as the Treasurer maintains his course to Budget surplus. As we have seen this year, contraction within the industry will continue as market access challenges grow and medicine prices fall. Close attention will be paid to the recently announced Patent Review, particularly from the generics sector and those companies with products facing impending patent expiry. The issue of transparency and industry’s interactions with health professionals’ will remain under scrutiny whilst fiscal and political imperatives will underpin most if not all interactions with government.

Finally, a federal election in 2013 adds an element of uncertainty as industry hedges its bets and lobbies for support from both sides of politics. My advice – don’t lose sight of the bigger picture, that in the context of Australia’s growing and ageing population, the productivity benefits of medicine spending are real and that Australia remains a critical launching pad to the burgeoning Asia Pacific market place.

Andrew Carter – Managing Director, Commercial Eyes

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