02 Jun 2015

Innovators to be hardest hit by PBS Access and Sustainability Package

Innovator pharmaceutical companies will be the hardest hit from the statutory price reductions, price disclosure changes and the speed with which generic drugs can obtain Pharmaceutical Benefits Scheme listing, brought about by implementation of the Government's PBS Access and Sustainability Package.

Elements of the new Package require amendments to be made to the National Health Act 1953. The proposed amendments are contained in the National Health Amendment (Pharmaceutical Benefits) Bill 2015, which was introduced into Parliament on 27 May 2015. According to the Government, the Package will:

  • enable net savings to Government of more than $3.7 billion over five years; and
  • ensure ongoing access to innovative medicines through a sustainable PBS.

Key amendments to the National Health Act

Statutory price reduction for drugs on the F1 formulary

The Bill proposes a one-off 5% statutory price reduction for all forms and strengths of a drug on the F1 formulary after the drug has been listed on the F1 formulary for five years.

The first reduction day will be 1 April 2016 and the last reduction day will be 1 April 2020.

The Government has clarified that the reduction takes no account of when the drug was listed for extension of indications, only the date on which the drug was first listed. This means that indications that were listed more recently will also bear the 5% price cut.

Price disclosure arrangements for drugs on the F2 formulary

The Bill provides that price disclosure arrangements for multiple-brand medicines that have been listed on the F2 formulary for three years or more will be changed to remove the originator brand from calculation of the weighted average disclosed price. More than one brand may be designated as an originator brand. The first reduction day will be 1 October 2016. This is likely to push weighted average disclosed price down and lead to greater price disclosure percentage reductions for multi-brand medicines on the F2 formulary.

Flow-on price disclosure reductions

The Bill proposes to apply flow-on price disclosure reductions for listed component drugs to multiple brand combination medicines on the F2 formulary. This process will commence on 1 April 2016, with a back-capture day on 1 October 2016 to flow-on any outstanding prior price disclosure reductions for component drugs to multiple-brand combination medicines. This will close a "loophole" which has allowed some companies to avoid price reductions of component medicines by listing a second brand of their own combination drug.

Price reductions on biosimilar listing

The proposed amendments remove uncertainty as to whether the first listing of a biosimilar will cause a 16% price reduction and movement of the biosimilar and its reference product to the F2 formulary.  If passed, the amendments confirm that such a 16% price reduction will occur and the biosimilar and reference product will be listed on the F2 formulary.  This will give companies greater certainty about the pricing consequences of biosimilar listing.

Proposed changes which affect generic listing and biosimilars

The Government's Package also includes the first ever strategic agreement with the Generic Medicines Industry Association which provides, amongst other matters, for:

  • an increase in the number of dates when new brands with price flow-on effects can be listed from three to six times a year, which will bring first generic products to market quicker;
  • substitution of biosimilars at the pharmacy level based on PBAC recommendations.

Less time for innovators, faster process for generics

The doubling of the number of listing dates for the first generic drug with price-flow on effects means that the time period between the first generic obtaining registration on the Australian Register of Therapeutic Goods and the generic obtaining PBS listing will be reduced. Innovator companies will therefore have less time to make a decision whether to apply for a preliminary injunction to protect any intellectual property rights they have relating to the drug prior to the generic obtaining listing on the PBS.

Further, if proceedings are commenced for patent infringement and a preliminary injunction is obtained by the innovator company which is discharged at the final hearing, the generic company will be able to get its PBS listing and be on the market in a much shorter time period than is currently the case.

Flagging of biosimilar products for substitution

It will be interesting to see how recommendations of PBAC on the flagging of biosimilar products for substitution with the reference biological medicine at the pharmacy level are applied. Generic companies have been lobbying for substitution and extrapolation across indications.

PBAC has advised that this flagging would occur where the data are supportive of such a conclusion. When establishing that a biosimilar product could be flagged with the originator product, PBAC says it will consider:

  • absence of data to suggest significant differences in clinical effectiveness or safety compared with the originator product;
  • absence of identified populations where the risks of using the biosimilar product are disproportionately high;
  • availability of data to support switching between the originator product and the biosimilar product;
  • availability of data for treatment-naïve patients initiating on the biosimilar product; and
  • whether the Therapeutic Goods Administration has deemed a product to be biosimilar with the originator product.

Where a biosimilar product could not be flagged at the time of PBS listing, PBAC says data should be collected to support flagging at a later point.

PBAC's intention to look at the absence of data regarding difference in clinical effectiveness or safety compared with the originator product and absence of identified populations at risk from substituting with biosimilar product is particularly problematic as these are negative stipulations. They do not require positive proof of no adverse difference in effectiveness, safety or special risk etc., but rather rely on the absence of data identifying any such issues. This may give rise to safety concerns if the data are absent because no studies have been done for a particular comparator.

Next steps

The Bill is listed in Parliament's indicative programme for further debate before the House of Representatives on 3 June 2015. Should the amendments to the National Health Act pass through both Houses of Parliament and be implemented together with the other aspects of the Government's Package, innovators will need to:

  • carefully consider the impact of pricing changes on forecasts;
  • re-evaluate the timelines for seeking preliminary injunctive relief for patent infringement; and
  • may also wish to approach PBAC to discuss how it will be assessing the absence of data when determining whether a biosimilar can be flagged for substitution.


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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.