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- Issue 72: June 2008

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Generic Drugs Might be Good Medicine for the PBS, but do Consumers Think They are Good for Them?

Neil Retallick
A Friendly Society Perspective

Issue 72: June 2008
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When the various stakeholders in the generic drugs industry gathered for a conference in Sydney recently, the Government was notable by its absence. 
This was ironic at a number of levels.
The PBS Reforms being introduced by the Government will have the most significant impact on the industry since this market emerged some three decades ago. 
For the rest of the industry to meet without the Government for this month’s talkfest was akin to the orchestra on the Titanic re-arranging the deck chairs to make sure everybody on deck had a seat. 
The real action had already happened, someplace else.

To add salt to these wounds, on the day prior to the conference the Federal Minister for Health announced that the Government was rescinding its commitment to promote generic drug use to the average Australian. 
It seems that after announcing a budget surplus of $20.7 billion, the Government needed to add back $15 million just to be sure.
That’s a lift in the surplus of 0.075%.

To leave $5 million on the table really added insult to injury. 
Does anybody think a $5 million national media campaign will actually have an impact on the use of generic drugs in Australia? 
McDonalds has spent more than that letting us know that they’ve changed the coffee at McCafe.
It was also interesting to note the lack of response to this announcement by the Pharmacy Guild. 
If their funding had been cut by $15 million, you would have heard the wailing deep into the night.

Mind you, at the conference no generic drugs supplier was putting money on the table to support a national advertising campaign designed to educate all Australians on the meaning of bioequivalence.
Notwithstanding that a number of speakers expressed concern that even key stakeholders such as GPs didn’t understand what a generic drug actually was and the approval processes required for its introduction into this market.

The Government decision to not promote generic drug usage might bring a certain clarity of role responsibility to the generic drugs market. 
The Government has taken up the responsibility to reduce the ongoing cost of the PBS by attempting to reduce the profit margins of the drug suppliers. 
It has also indicated that when it comes to promoting the use of these drugs, that’s not their responsibility.

Community pharmacy, through the Guild, has negotiated with the Government to ensure that there will be very little loss of profits in the medium term in this sector as a result of PBS Reforms.
Further, there has been no substantial commitment made to the development of an education campaign promoting an increase in the use of generic drugs.

The pharmacy wholesalers are focused on minimizing the negative impact on their already slender bottom lines that is looming as a consequence of the Guild and the Government not understanding their situations and operational processes and negotiating accordingly.
The PBS Reforms will adversely affect the pharmacy wholesalers – who are not significant players in this market anyway.
Educating consumers about generic medicines is not high on their agendas. 
Shareholders are more their focus.

For their part, the generic drug suppliers are operating in an increasingly competitive, commercial market trying to minimize their profit losses and maximize their market shares.  The incumbent suppliers have one eye on their bottom lines and the other focused on ensuring no opportunities are created for new players to enter the market.
The likelihood of increased price discounting and reduced profit margins does not provide a platform likely to precipitate an increased expenditure on consumer education.

As of today, what is not clear is the extent to which, in the medium term, the reduced profit margins that the market will experience are to be shared between the drug suppliers, the wholesalers and community pharmacy.
What is certain is that the average Australian’s use of generic medicines will not increase significantly any time soon and that ultimately puts upward pressure on the total cost of the PBS. 
If the Government is looking to big savings when the originator blockbusters come off patent in the next few years, why wouldn’t they start now to improve the understanding of the average Australian about generics? 
Surely this is a good investment for the future. 

If substitution rates can be increased, then the Government’s cost saving ship will come in.

Neil Retallick

June 2008      


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