What if all Australian pharma companies went broke next week?

7 minute read

KnowCents PBS

By

Jeremy Knibbs

We love to hate our pharma companies but what if they took their bat, ball and drugs and went home?

 

I was tossing up how I’d get a doctor to read this story so I had to jig the headline just a little to get you to give it a whirl. You see, most doctors don’t care that much for pharmaceutical companies.

In all the surveys I’ve ever done they’ve said: “Don’t write about them, we don’t care.”

To be fair, that’s not what all the doctors used to say. Some were more polite and some even pointed out some of the good things that come from local pharma companies for doctors, such the quality of some of the medical education they fund. But mostly these ones were in the minority.

Are you still reading? The headline I started this story with was “Worst year for our local pharmaceutical industry on record”’, but I quickly thought, no one will read that (except maybe for the hardline cynics who wanted to gloat over just how bad it actually was).

I wondered why there was so much apathy and that got me thinking about what would happen if we didn’t even have a local pharmaceutical industry? How would that affect Australian doctors? Would they even miss it?

The origin of this story comes from the release last week of a white paper in industry newsletter Pharma in Focus (PIF) that said that business sentiment in the prescription pharmaceutical industry had fallen to it’s lowest levels since 2012-13. The sentiment is measured by an index that this newsletter cleverly invented called The Australian Pharma Confidence Index (APCI). Apparently it has dropped six points in the last year from a high of 111 to today’s level of 105.

Technically, things were worse in 2012-13 because then the index was 95 and PiF says that despite the low score, this year is the biggest year for pharma company sales since 2012.

The Medical Republic is going to go on a limb here and say that there’s something wrong with the index because in most respects things are much harder this year for pharma in Australia than they were in 2012. It probably is their hardest year ever. Yes, their sales are up, but almost certainly they are suffering significantly profit-wise.

Some of the quotes that PIF recorded anonymously for their sentiment survey from some local Pharma CEOs and executives provide a few insights into how that profit is disappearing. You’re probably not going to be interested, but if you were, this might be a top 10 list of what keeps Australian pharma CEOs up at night:

  • “Reward for innovation is being stripped away little by little”
  • “Disastrous failed negotiations with Medicines Australia”
  • “Ad hoc saving measures introduced again…”
  • “Major loss of influence with government and health bureaucracy”
  • “Health minister with very little interest in health, who sees it as a cost to be contained”
  • “Price erosion and continued delays to reimbursement…”
  • “PBAC declaration to ‘a-flag’ biosimilars and loss of MOU protection” (means PBAC is treating new biosimilar drugs the same as generic drugs, which is highly controversial)
  • “The introduction of accelerated price disclosure…”

And so on. It all seemed pretty gloomy. And some of those pharma CEOs are really well trained to appear positive in surveys.

Are you feeling a little sorry for them yet?

As my old boss used to say, everything is relative, and in relative terms, if you’re in the business of prescription pharmaceuticals in Australia you’re under a tonne of pressure these days. Most are satellites of their global businesses with head offices mainly in the US or Europe. HQs generally aren’t too forgiving when your profit is dropping in double digits, no matter how bizarre government policy on drug pricing seems to have become.

From a people perspective, certainly it’s a hard place to be working. Some bosses will privately admit (and regret) that they had to significantly reduce their workforces this year, just in response to a 5% cut in pricing across the board on most of their products, which was one PBAC initiative which starts next month. By some estimates that single cut may have caused more than 1000 employees to lose their jobs.

Yes, the pharmaceutical industry isn’t the usual business suspect you’d shed a tear for. They have been, as a rule, significantly profitable over the years. They have had the odd scandal on pricing and questionable drug cover-ups, and they tend to shift their tax burden away from Australia a fair bit.

But what if the bad times kept going here? What if the government pushed just a little too hard (they probably won’t) and the global bosses of these drug-making behemoths decided it just wasn’t worth having a local presence in Australia? What would we lose? What specifically might doctors, and patients, lose?

As an economy we’d lose about 17,000 jobs directly (arguable another 30,000 indirectly, including mine), $4 billion in exports, $24 billion in capital per annum and $400m in R&D money.

Of the $24 billion pharma companies turn over each year, about $7.5 billion comes from the PBS. Where does all the rest come from I wonder? I was always told the pharmas relied heavily on the PBS.

Here a few issues that might arise:

  • Access to new and potentially game-changing drugs would almost certainly be significantly more delayed for Australians as all clinical trials in the country moved back offshore.
  • New drugs would likely come on to the market much more slowly than the rest of the world because hardly anyone local with any money (or a bonus to lose perhaps) would be interested in trying to convince the government to push new medications faster. Yes, on the one hand pharma companies are conflicted in arguing for PBS listings of new drugs, but on the other do you trust the government to do it efficiently?
  • The price of drugs might rise as there would be nolocal manufacturing and we’d be more subject to transportation costs and the whims of foreign currency fluctuations. Actually, it could easily go down as well, so maybe that’s not such an issue.
  • The quality and volume of CPD education would plummet and the price would skyrocket. Like it or not, pharma spends north of $200m a year sponsoring medical education for doctors and that’s getting more and more hands off.
  • Local medical research institutions would get a lot less money. Australia would develop no virtually no drugs locally at all, or have collaborations with bigger groups that do. Our best brains would leave the country and we’d end up in a situation where our local capacity to teach, train and analyse medicine locally would lessen.
  • You wouldn’t get Australian Doctor, The Medical Republic, Australian Family Physician and Medicine Today for free. Like these publications or not, and their associated news and web services, they are among the most- read and highest-quality medical publications in the world (discounting peer review journals, which are high quality, but usually aren’t read well by GPs) and they are mostly funded by advertising from pharma companies (this part of the story means I don’t need a disclaimer at the end).

Practically, it seems like it might be a little difficult if all our pharma companies did decide to pull up stumps and take their bat, ball and drugs and go home to the US or Europe.

Tearing up yet? No, I guessed not.

Maybe you can think of some things that might go wrong, or, if you like, how it might be better if we had no local pharma companies.

We’re interested to hear your views.

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Mark Raines
Mark Raines
8 years ago

For opinion piece it would be good to know who Jeremy Knibbs is and who he represents.

To counter

“pharma spends north of $200m a year sponsoring medical education for doctors”

Isn’t that just marketing? The drug company makes that money by increasing cost to the consumer. It isn’t an altruistic donation. So no marketing, drugs would be cheaper. Gain

No local pharmaceuticals would open the way for cheaper generics. Gain there.

Most major drug trials are done in Europe or the US, Australia would continue to benefit just like New Zealand, South Africa or Malaysia does.

Not all medical research requires is dependent upon drugs; research will continue.

Paying for medical information without advertising is not a bad idea. May remove bias or at the least distraction or marketing.

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Jeremy Knibbs
Jeremy Knibbs
Author
Reply to  Mark Raines
8 years ago

Hi Mark

Apologies, I should have made it clearer at the end of the article I agree. I’m the business and technology reporter and the publisher of The Medical Republic media group, which as things stand today, relies largely on advertising from pharma companies for it’s revenue. So, as I pointed out in the article there is a degree of conflict in me writing the this piece (all the more reason I should have been clearer as you point out) . All your points are good ones from my perspective and worthy of debate. To your questions:
1. Yes Med Ed funded by pharmas is a form of marketing – content marketing. But it is education and usually very high quality education that probably wouldn’t exist without them. The bias in most pharma medial education in my experience is not actually in the content of each course – there are very strict rules about them being biased in this respect – but in that they only tend to fund education around drugs they market. This leaves a lot of important areas of medicine that need more education under funded. Some pharma companies, acting as good corporates do this as well, but not enough in my view. Drugs would not necessarily be cheaper with no marketing – but that’s a detailed argument I won’t attempt here.
2. Having no pharmas would open the way for cheaper generic drugs? Possibly, but the generic drugs wouldn’t be there in the first place without the pharmas investing a lot of money in the original version of the drug.
3. Yes, most major drug trials are done in Europe or the US, but that we have a local pharma industry has very clearly created a local clinical trials industry and made it feasible for access for many Australians to these trials of experimental and some times life saving drugs. A local pharma presence whether we like it or not also means faster access to newly approved drugs more readily. In countries where the local pharma industry has a lower or no presence, access to drugs is almost always slower – a commercial reality unfortunately. New Zealand, where legislation many years ago created a drastic decline in local pharma presence has one of the lowest rates of access in OECD countries. The offset for the country might be cheaper drugs. Hence the importance of ongoing debate.
4. No, not all medical research depends on pharma companies, but almost always new drugs are developed by pharma companies. Companies like Astra and Novo Nordisk to just name two pour billions into researching new drugs each year. As you point out, pharma companies aren’t altruistic. They are commercial. But the result of that commercial activity often is something good for all of us.
5. Paying for medical information without advertising would certainly remove any perception of bias, or actual bias, if we were biased (which we try very hard not to be).

Thanks for your thoughts. It’s an important debate to keep having in my view. In an ideal world in my (albeit conflicted) view, it would be great if governments were efficient enough, clever enough and had enough money to do all of the stuff pharmas actually end up doing for us. No, they don’t do it for free, and like most companies, pharmas aren’t all good for sure. You get big enough and make enough money and things start twisting in your processes and culture.
Certainly people don’t like the idea of a company profiting from people’s ill health – why else would pharma companies come out lower in surveys on people’s thinking often than tobacco companies. Getting rid of pharma companies altogether isn’t a good path in my view. Keeping them on their toes and serving their customers (patients) to the very best of their abilities and with the highest standards of ethics? Absolutely. And to that end there is always work to be done. Although you might be surprised to meet a few CEO’s in this industry as I have and see how absolutely committed they are to serving their customers (patients) in the best possible way, saving more lives and improving the lot of our health overall.

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