The Keytruda debate has put Pharmac in the spotlight again. Martin Johnston investigates how the drug-funding agency makes its decisions.

In New Zealand we have a love/hate relationship with Pharmac, the agency that decides which drugs our Government will pay for.

For months we were in a love phase, nationalistic pride demanding that Pharmac be protected from the trade-pact demands of American pharmaceuticals giants.

Now it's back to the usual gripes, after the high-profile rejection of Keytruda, an expensive drug that has brought new life to some patients dying of inoperable, advanced melanoma.

Some patients have experienced the disappearance of their tumours and two cancer specialists have told the Herald the drug is the biggest breakthrough since the development of chemotherapy. The drug's supplier, Merck Sharp and Dohme, says one trial found 45 per cent of advanced-melanoma patients receiving the drug as first-line therapy experienced tumour shrinkage of more than 30 per cent; in a further 35 per cent, tumours shrank by less than 30 per cent.


Pharmac committees were unconvinced and assigned a low priority to funding the drug because of its high cost and the uncertainties about its effectiveness - uncertainties that arise because it is new and long-term data has not yet accumulated.

"I would rather Pharmac tell the truth and say, 'We can't afford it.' That makes sense to people," says Leisa Renwick, a melanoma patient who featured in the Herald's cancer series and has now become a face of the campaign for state-funding of Keytruda.

She has personally gathered 200 signatures on her petition seeking extra taxpayer dollars for Pharmac to fund Keytruda. She has also handed copies of the petition to about 30 other people and electronically has distributed an unknown number to strangers who have emailed her out of the blue or contacted her on Facebook.

Separately, Wellington melanoma patient Katrina Govorko's online petition to fund Keytruda has now attracted more than 7000 supporters.

Renwick, a 47-year-old Tauranga teacher and married mother of three young adults, who was saved from imminent death by another unfunded melanoma drug, dabrafenib, faces paying up to $300,000 over two years to be treated with Keytruda.

That's even after a discount from Merck. The full price of the medicine, excluding GST and clinic costs, would typically be $122,000 to $163,000 a year, depending on a patient's weight, although the ideal duration of treatment is unknown and it is unlikely to be suitable for all patients.

But multiply $140,000 by 350 - the number of people who die of melanoma in New Zealand each year - and the size of Pharmac's headache approaches $50 million, a big chunk of its $800 million annual budget for community medicines, hospital cancer medicines, vaccines and medical devices.

Except that Pharmac, thoroughly used to its own unpopularity, doesn't see it as a headache; it's business as usual.


When asked if Pharmac's systems can cope with new super-expensive drugs like Keytruda, chief executive Steffan Crausaz describes the agency's use of cost/benefit analysis and other decision-making criteria.

"I don't think the development of new treatments is going to disrupt that, because the process is the same," he told our cancer investigation.

"I think the fundamental aspect of understanding the value proposition for the use of health resource and thinking about the relativity between different options for that resource will still stand up."

To back its argument that it does fund high-cost drugs, Pharmac says 80 per cent of the combined pharmaceuticals budget last year was spent on drugs for 10 per cent of patients treated. "In other words, there's a comparatively small number of people being treated with a very high-cost specialised drug," a spokesman says.

One is abiraterone, for advanced prostate cancer, at a cost of $14.9 million a year before "rebates" - which are confidential discounts from the supplier.

There are always more drugs than can be funded by Pharmac's capped budget. So how does it decide whether to buy one expensive cancer drug or another, or to instead fund cheaper drugs for many more people? Outsiders might expect there is a cost/benefit threshold, like the one used in Britain, that explicitly measures the value of a life.

Health economists have a measurement they call a QALY, a quality-adjusted life year. One QALY equals one year of life in perfect health for one person, or two years of life rated at half the quality (two times a half equals one), and so on.

Britain's threshold for funding of a drug by the National Health Service is that it will produce one QALY for 20,000 to 30,000 ($45,254 to $67,881).

Pharmac, created in 1993 and a survivor of a National Government's market-oriented health changes, says it does not have a threshold for funding drugs.

However, it does look back at each financial year to see what sort of value for money it achieves from funding new medicines - after all the discounts from drug companies, the multi-medicine deals and other forms of haggling to force prices down. In 2013/14 the new-drug price for one year of life in perfect health turned out to be $35,714, nearly $10,000 less than the lower end of Britain's funding threshold. In earlier years the price has ranged between about $37,000 and $45,450.

Leisa Renwick pictured at home in Tauranga today. Photo / Alan Gibson
Leisa Renwick pictured at home in Tauranga today. Photo / Alan Gibson

But Pharmac insists it is not all about cost-effectiveness.

It has nine decision criteria, including "the health needs of all eligible people within New Zealand", the impact on the Government's health budget and "such other criteria as Pharmac thinks fit".

Over coming months, a modified system of "15 factors for consideration" will replace the criteria.

"One of the major changes," Crausaz has said, "is the explicit acknowledgement that Pharmac considers the impact of a decision on a person, their family, whanau and on wider society and also recognises the wider impact on the health system. Pharmac will consider these impacts in terms of need, health benefits, costs and savings, and suitability."

Labour politicians say Keytruda has shown changes of a different kind are needed.

Party leader Andrew Little has said Labour would direct Pharmac to fund the drug, which is state-funded in Australia and England, if the party won the next general election. National MP Judith Collins, before her re-appointment to Cabinet was announced this week, hinted the Government might yet fund Keytruda, but there has been no rush from Health Minister Jonathan Coleman to confirm this.

Labour's plan, following a suggestion from Cancer Society medical director Dr Chris Jackson, is to create a special fund to pay for new cancer medicines that, like Keytruda, show great promise but are too young to have produced the kind of data needed to satisfy a healthcare rationing agency such as Pharmac.

In 2010, Britain created the Cancer Drugs Fund in England to pay for medicines rejected or not yet evaluated by the British equivalent of Pharmac, the National Institute for Health and Care Excellence (NICE).

Pharmac declined interview requests for this story, but pointed the Herald to an Economist article that slams the Cancer Drugs Fund, reporting it makes less-stringent evaluations than NICE and has undermined it. York University calculations indicate spending in the wider National Health Service achieves at least five-fold more quality-adjusted life years per pound than the Cancer Drugs Fund.

Greens health spokesman Kevin Hague, who has been campaigning on the failure of Pharmac's combined pharmaceuticals budget to keep up with costs and population growth, has criticised Labour's proposed political intervention.

Political decision-making on medicines is "a very bad idea", he said on Twitter.

Pharmac documents he obtained under the Official Information Act show the combined pharmaceuticals budget was expected to rise by $11 million this year to "maintain momentum in widening access and making new pharmaceutical investments". But the Government instead increased the budget by only $5 million, to $800 million. The budget has risen by three per cent a year on average since 2007/08.

The size of the drugs budget is at the heart of the debate over Keytruda. Pharmac was created to constrain growth in spending on non-hospital medicines, which was 20 per cent in some years in the 1980s, and more recently its role has expanded into hospitals.

Although New Zealand is slightly above average among the OECD club of developed countries for overall health spending as a proportion of the national income, we are ranked 29th out of 33 countries for our spending per capita on medicines.

Pharmac regularly trumpets the savings it has made for taxpayers, for instance the savings in the combined pharmaceuticals budget of $52.7 million in the last financial year alone.

But drug companies, charities and sometimes doctors complain that Pharmac is comparatively slow to fund new medicines.

A pharmaceuticals industry analysis found that New Zealand was the slowest of 20 nations studied to fund medicines, as measured from when a drug was licensed.

In New Zealand it took on average 19 months, compared with less than 11 months across the 20 countries. Australia, ranked 13th, took just over a year.

Pharmac, however, says research it commissioned found that the 22 cancer medicines funded in Australia but not in New Zealand "don't offer health gains that would be considered clinically meaningful".

Breast cancer and leukaemia charities are incensed by what they call the "misleading nature" of the report, which they dissect in letters of protest to Pharmac.

Leukaemia and Blood Cancer NZ says that, for instance, lymphoma patients are "woefully less served with drug access ... when compared across a number of countries including those outside of the OECD".

Merck has put a new Keytruda offer to Pharmac that includes discounts on other drugs. Pharmac, with its love of competition, may be wondering if New Zealand applications will be made to register and fund Opdivo, which is in the same class of drugs as rival Keytruda and, like it, received "breakthrough" status from American drugs regulators. Both are being trialled internationally in an expanding range of cancers.

$795 million combined pharmaceutical budget for community medicines, vaccines, hospital cancer medicines and medical devices

43.1 million funded prescription items filled

3.5 million New Zealanders receiving funded medicines

$52.7 million savings achieved

21 new medicines funded

20 medicines with access widened

2,570,000 prescriptions for paracetamol, the most commonly prescribed state-funded medicine

$70,860,000 (excluding GST and rebates) - most expensive funded drug therapy, adalimumab, for conditions including rheumatoid arthritis. A price cut comes into effect next month

Sources: Pharmac's annual report and annual review for 2014/15