New Zealand Pharmaceuticals and Healthcare Report Q3 2012

BMI View: New Zealand’s pharmaceutical regulatory regime continues to be of major concern for multinationals. For example, according to the Pharmaceutical Research and Manufacturers of America (PhRMA)’s Special 301 Submission for 2012 requested that New Zealand be placed on the Priority Watch List, citing issues such as transparency, fairness and predictability of the state pricing and reimbursement regime, and the overall climate for innovative medicines in the country. Such issues, coupled with small population, will continue to sideline New Zealand in terms of both innovative drug launches and pharmaceutical industry investment into research and development (R&D). Headline Expenditure Forecasts

Pharmaceuticals: NZD1.35bn (US$1.07bn) in 2011 to NZD1.37bn (US$1.01bn) in 2012; +1.6% in local currency and -5.1% in US dollar terms. Forecast lower than in Q212 due to macroeconomic factors.

Healthcare: NZD19.37bn (US$15.31bn) in 2011 to NZD20.08bn (US$14.83bn) in 2012; +3.7% in local currency and -3.1% in US dollar terms. Forecast lower than in Q212 due to macroeconomic factors.

Medical Devices: NZD814mn (US$644mn) in 2011 to NZD833mn (US$615mn) in 2012; +2.3% in local currency and -4.4% in US dollar terms. Forecast lower than in Q212 due to macroeconomic factors.

Risk/Reward Rating: New Zealand’s score increased from 53.9 in the Q212 to 54.4 in BMI’s Q312 Pharmaceutical Risk/Reward Ratings (RRRs). The change means that New Zealand now ranks ninth – up from tenth previously – within the Asia Pacific matrix that ranks 18 key markets. New Zealand’s small population and the focus on pharmaceutical cost containment will continue to hamper commercial opportunities for pharmaceutical manufacturers, despite a predictable business environment.

Key Trends & Developments

In March 2012, the country’s Pharmaceutical Management Agency (PHARMAC) in New Zealand, which is in charge of reimbursement decisions, reached an agreement with GlaxoSmithKline (GSK) to provide funds for two new orally administered cancer treatments, namely Tykerb (lapatinib) and Votrient (pazopanib). The treatments will be funded as substitutes for the treatments that are already funded by PHARMAC, namely Herceptin (trastuzumab) and Sutent (sunitinib).

The growing gap in healthcare access between rich and poor people in New Zealand has been examined in The Lancet medical journal. The article, published in March 2012, urged the government to take appropriate measures to control the growing rate of infectious diseases in the country. In the meantime, Prime Minister John Key said the health gap is a broad social issue that must be addressed urgently.

BMI Economic View: We continue to expect lacklustre growth from New Zealand in 2012, as weakness in private sector consumption and investment continue due to the ongoing contraction in consumer credit and the thinning of profit margins. Fragile growth in the domestic economy is likely to confound the government's efforts to reduce its expenditures, while its determination to control public debt will likely limit any stimulus measures. Coupled with sluggish demand from key export markets, we forecast growth of just 1.7% for 2012 and 2.3% for 2013 versus the consensus' forecasts of 2.1% and 3.4%, respectively.

BMI Political View: The government has embarked on various measures to cut down on its expenditures as it aims to return to budget surplus in FY2014/15. However, the belt-tightening comes at a bad time, given that we expect welfare payouts to increase as the economy weakens, and the government is likely to face increasing pressure to provide some form of fiscal stimulus. Furthermore, with tax revenues likely to come in lower than its forecast as earnings from both businesses and employees decline, the government will be left with even less room to manoeuvre. Considering the increasing constraints on its budget, we expect government expenditure to still grow, albeit at a weaker rate of 1.0% in 2012, down from an estimated growth rate of 2.9% in 2011.