PHARMAC on the altar of free trade

Written By: - Date published: 7:36 am, November 18th, 2009 - 25 comments
Categories: health - Tags:

Yesterday John Key indicated that he might be willing to dismantle PHARMAC if it gets us a better free trade deal with the US*.

We’re lucky to have a few great institutions in New Zealand that deliver for everyone at a lower cost than other countries – ACC is one, PHARMAC is another. both are on National’s chopping block.

PHARMAC’s funding programme saved New Zealand $2 billion in medicine purchases in its first decade of operation (I haven’t been able to find a cumulative total after 2003). Thanks to PHARMAC we only need to spend 12% of our health budget on drugs, rather than 18% like the Aussies – all those savings go into improving health-care. And Key seems willing to give it up. I guess it’s hard for him to appreciate the value to ordinary New Zealanders of subsidised medicine and better public healthcare.

Let’s be clear. We do not have to give up PHARMAC to get a free trade deal. In reality no free trade deal short of a EU-style common market completely removes all barriers to trade. Australia won’t even let in our apples despite Closer Economic Relations. All countries go into these things with certain non-negotiable points. In any deal with the US we just have to say from the start that PHARMAC stays. We can have a free trade deal without losing PHARMAC and the savings it delivers to New Zealanders.

But I suspect that Key would put no such condition on negotiations with the US. Although National set up PHARMAC in 1993 and they have no official policy to dismantle it, the neoliberal ideology now firmly cemented within National means they are reflexively opposed to public monopolies, even though they work.

*[frankly, I don’t see negiotations for an FTA getting underway any time soon, anyway. Sure, Obama said he supports the idea but he’s got bigger fish to fry and he doesn’t need to piss off his base]

25 comments on “PHARMAC on the altar of free trade”

  1. Pharmac had a hand in destroying the NZ manufacturing pharmaceutical industry along with all the direct and indirect employment it provided. NZ bludges off the innovation that the US pays for by moving to generics asap and/or playing off one brand supplier against another. I won’t argue that the taxpayer has not been saved money but at what cost to the economy in the recent past and in the future? Glaxo, (after six or seven others left), the largest NZ manufacturer, pulled out in the mid nineties putting a halt to the construction of plants in Palmerston North that were going to supply the Australasian market. The domestic market and negotiating conditions, courtesy of Pharmac, were too hostile to continue.

    • Noko 1.1

      or playing off one brand supplier against another.

      That’s how capitalism works.
      Of course we move to generics, why would be pay higher prices for virtually the same product? It’s a foolish move.
      The U.S. pharmaceutical companies really aren’t hurting from our government’s choice to make Pharmac. Four million people is a small market to them.

      • Marty G 1.1.1

        not just virtually the same, chemically the same. the fact that generics are so much cheaper shows how much big pharma creams it on other people’s ill health.

        • gitmo

          “the fact that generics are so much cheaper shows how much big pharma creams it on other people’s ill health.”

          That’s somewhat unfair as the generics have no discovery or clinical trial costs which will likely run into the billions – sure the big pharma make big money fair enough but they shouldn’t be surprised when people move to cheap generics when they become available.

          • Lew

            Largest single cost in the life-cycle of a typical pharmaceutical: R&D? nope. Testing and trials? nope. Certification and licensing? nope.



            • gitmo

              Yes ….. so ?

            • Lew

              gitmo, so crying “no R&D costs, no fair” isn’t anything like the silver bullet you think it is.

              Add to which, the bulk of initial discovery and R&D costs are borne by publicly-funded universities, while even the costs of testing, certification and commercialisation of pharmaceuticals are heavily subsidised throughout the world.


            • gitmo


              Discovery R&D and registration trials run into the billions for originator pharmaceuticals this is a fact. These costs are not there for generic manufacturers.

              Yes they spend shite loads on marketing no doubt to make as much money as possible prior to patents expiring.

              I’m not sure what point your trying to make that profits are high for multinational pharma – I’m sure they are, but they’re a completely different beast from a generic pharmaceutical supplier.

            • Lew

              Those costs are predominantly not there for Big Pharma, either — they’re predominantly borne or subsidised by government via publicly-funded universities, often working in partnership with the pharmaceutical companies, and while those companies are correct in saying that “drug X cost y billions of dollars to develop’, what they don’t say is that they didn’t pay all that money.

              Essentially, my point is that pharmaceutical companies aren’t R&D organisations — they’re not set up for it. They leave the heavy scientific lifting to research departments at universities, and focus their efforts on the last mile to market: fine-tuning, characterisation for patent development, trials, commercialisation and marketing.

              Suggest you read Information Feudalism, Drahos & Braithwaite, for a more thorough examination of hos this sort of thing works.


        • Noko

          That’s not quite true, Marty. As this column shows, there’s sometimes a difference. I know it’s U.S. based, but since we take most of our cues from the U.S. FDA, I think it applies here too.

          • Kruk

            We had an example of the non-equivalence of a generic product righter here in NZ. A generic brand of the heart/blood pressure medicine felodipine had to be pulled because it wasn’t equivalent to the the brand name product, Plendil. (After large numbers of patients were put on it, causing no end of of worry for patients, and a nightmare for doctors and pharmacists.)

            On the flip side, the COX-2 Inhibitor saga (increased risk of heart attack comped to older and cheaper drugs) showed that brand name products aren”t always what they’re cracked up to be, either. One of the reasons we weren”t widely exposed to those risks is that the COX-2s weren’t funded by PHARMAC


            If you chose to use either of those examples, you could use them to argue that either generics or brand name products were dodgy. I see both cases as isolated examples of failure of regulation. Generic products are very widely used, and in most cases the switches are smooth.

    • gitmo 1.2

      Glaxo closed their plant in Palmerston because manufacturing was cheaper offshore and they had recently merged with Wellcome so had a surplus of sites – PHARMAC was a convenient excuse.

      Most pharma companies are consolidating there manufacturing in cheap locations or contracting it out.

      • Noko 1.2.1

        gitmo, even the pharmaceuticals admit that they spend almost as much on marketing as on R&D.
        However, generics show that at least in part, the patent system is working, balancing the good of the public with pharmaceuticals chance to make money. It makes me glad that at least one part of the “intellectual property” system is working.

  2. millsy 2

    Ahhh Lindsay, always on your crusade to ramp up costs for poor people.

  3. Noko

    ” or playing off one brand supplier against another.”

    ‘That’s how capitalism works.’

    No. Monopoly purchasers are not part of a free market. The sellers had no choice but to bend to the dictates of the sole purchaser, Pharmac. That is not capitalism.

    Gitmo, I said Pharmac played a part – not that it was the whole cause of Glaxo’s departure. Pharmac was not a convenient excuse. The hostile political environment made a significant difference.

    “Ahhh Lindsay, always on your crusade to ramp up costs for poor people.”

    ?? Always looking at the interests of those who want to work for a living and increase the country’s prosperity. Manufacturing and export provides employment.

    • gitmo 3.1

      “Gitmo, I said Pharmac played a part not that it was the whole cause of Glaxo’s departure. Pharmac was not a convenient excuse. The hostile political environment made a significant difference.”

      Strange that the MD at Glaxo at the time told me it was brilliant timing.

      • gitmo 3.1.1

        And in relation to PHARMACs monopsony position – people can still pay for the originator medicine , however the vast majority choose not to, PHARMAC operates not too differently from the massive HMOs in the states who when generics become available change everyong across to cheaper meds

    • snoozer 3.2

      lindsay. unregulated capitalism tends towards monopoly. It’s only anti-trust/anti-competitive laws that stop monopolies happening all the time.

  4. Kruk 4

    “No. Monopoly purchasers are not part of a free market. The sellers had no choice but to bend to the dictates of the sole purchaser, Pharmac. That is not capitalism.”

    Actually, they have several other choices. They can choose not to operate in that market. They can persuade the public to to pay the premium for a partially funded or non funded brand (which they do in ads that tell people to ask for a particular product by brand name). They can convince doctors to prescribe by brand name and refuse pharmacists permission to substitute (the Medicines Regulations specifically forbid changing the brand of a medicine without the doctor’s permission.) They can also grow the market by convincing new buyers (such as health insurance companies) to get into covering non-Schedule drugs. As I recall, ING was running ads a while back promising just that.

  5. OK.Let me re-phrase that. They had no choice if they wanted to either continue to viably operate or expand sales in the market. All of the other options involve competing with heavy subsidies or state intervention in the free market.

    • Kruk 5.1

      Isn’t that the case for anyone who competes to provide any service provided by the public health system, though? A private hospital who provides surgery, for instance, would have to charge several thouand dollars either from the patient or his/her insurance company, whereas the public system is subsidised by taxes and doesn’t charge the patient anything when they he/she has the surgery. The benefits of having it done privately are that you can have it done straight away and have a choice of doctors/hospitals that you might not have in the public sector. It seems there are enough people who value those benefits for private health insurance and private hospitals to offer an alternative to the public system for surgery. If the same was true for pharmaceuticals, wouldn’t you expect the market to fill that need?

  6. Gitmo, I’ll take your word for it. I worked there and heard differently. No doubt there were competing lines. Whatever happened I believe the government of the day put the short term interests of NZ before the long term. Large companies do not invest where they are not welcome.

    • gitmo 6.1

      Hi Lindsay

      Large companies will invest where ever they can make a buck over the short but preferably medium to longer term.

      The reality is the big pharma companies would never have put back even 20% of the profits they were taking offshore….. the other problem is that many were the architects of their own demise, regardless we’d be mad to be paying the prices that some of these medications are going for in the states in even across the Tasman when we can get them at a small fraction of the cost.

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