February 9, 2006

A number of planned changes to Australia's Pharmaceutical Benefits Scheme (PBS) could end up reducing investment in the biotech sector, according to industry body AusBiotech. Under the reforms, drug companies will have to tender to supply generic medicines to the PBS, with contracts going to the lowest bidder. The government expects this to save the PBS between AUD300mn (US$221.96) and AUD800mn (US$591.76mn) over the next few years.

A similar policy is also likely to be introduced for branded drugs, with drug companies forced to match the lowest tendered price in each therapeutic class. Meanwhile, the winning bidder will receive an exclusivity period in which it can offer the discounted drugs without competition.

The new reforms are expected to lower prices, but could persuade foreign drug firms to reduce investment in drug development. AusBiotech estimates that up to AUD300mn (US$221.96mn) in R&D funding could be at risk. The body cites the example of New Zealand, which introduced price restrictions in the 1990's, and subsequently experienced a reduction in the development of innovative new medicines.