Executive Summary

Queensland, as part of its Smart State Agenda, is focussing on knowledge based
industries and is developing as the “Biotechnology Hub of the Asia Pacific”. From a
Pharmaceuticals Industry viewpoint, Queensland’s strengths are mostly in the earlier
parts of the value chain with emphasis on developing biotechnology SMEs and
pharmaceutical research and development (R&D).

Queensland has considerable biodiversity, which can provide a basis for new drug leads
or new delivery mechanisms. In the recent past, Queensland has significantly expanded
its biotechnology capabilities in developing new therapeutics, conducting clinical trials and
has major pharmaceutical companies engaged in R&D. With the most recent $5 million
expansion of the existing $13 million Centre for Biomolecular Science and Drug Discovery
and the further renewal of the Astrazeneca and Griffith University partnership
collaboration venture, Queensland is closer to highlighting its capabilities as an advanced
R&D hub. Queensland is also the home to two major pharmaceutical manufacturers:
Herron and Alpharpharm.

The increasing importance of the Pharmaceutical Industry in Queensland is also shown in
the Queensland Government’s support for the development of the Pharmacy Australia
Centre of Excellence co-located with the Princess Alexandra Hospital in Brisbane.

Currently Queensland has no participants in the Pharmaceutical Industry Investment
Program (PIIP). There is a case for Queensland to obtain a significant portion of any
future PIIP funding rounds as a result of our research and infrastructure capabilities.
Commonwealth funding assistance is not only vital for nurturing and growing similar
partnerships that contribute to the development of pharmaceutical industry within
Queensland, but also result in the development of the much-needed critical mass for

As part of the overall submission Queensland government would like to encourage the
Commonwealth to consider the following changes to the pharmaceutical sector
development, including:

   •   changes to the eligibility criteria of future PIIP or similar industry funding programs
       to enable wider participation in the program;
   •   modify PIIP to provide greater reassurance to companies regarding the intellectual
       property risks;
   •   other mechanisms to increase the R&D funding; and
   •   mechanisms which may reduce the cost to Government as a purchaser of a
       selected range of pharmaceutical products.

                                                                                     Page 1 of 6
1.0 Pharmaceutical Industry and the Pharmaceutical Industry Investment Program

The pharmaceuticals industry features prominently in the high technology sector and
relies heavily on a workforce with high education and research skills. The general
perception is that over the past 15 years, this industry has become a significant
manufacturing sector in terms of production, investment, innovation, international trade
and employment. The industry has attracted considerable research energy in recent
times. However, most of the research findings are limited to the microeconomics of
pharmaceuticals and health which are only fragments of the big picture.

The Pharmaceuticals Industry Investment Program (PIIP)’s primary aim is to
compensate participating companies for price suppression delivered through the
Pharmaceutical Benefits Scheme (PBS). PBS is a major funder of pharmaceutical
products in Australia accounting for some $4 billion per annum. The prices negotiated
through this scheme are often criticised by industry as being amongst the lowest in the
world. There is also recognition within industry that the PBS applies a fair and consistent
approach and is one of the most equitable models around the world.

2.0 Description of activities in Queensland

Queensland has a few major pharmaceutical players, including the manufacturing
facilities of Alphapharm and Herron and the research arm of AstraZeneca, operating
through its partnership with Griffith University. None of these are involved with PIIP.
Herron is a local company that manufactures some over the counter products.

Alphapharm, a subsidiary of Merk KgaA, employs over 550 people and manufactures over
2 billion tablets and capsules of patent expired products.

AstraZeneca has partnered Griffith University for over 10 years expending over
$35 million on developing the AstraZeneca-Griffith University facilities and screening for
hits from natural products for lead therapeutics. In October this year, AstraZeneca
renewed its partnership and agreement to fund the facility for another 5 years.

Queensland is also the home to a number of smaller operations of multinational PIIP
participating companies such as CSL, Pfizer, Pharmacia and Bristol-Myers Squibb. The
activities of these companies in Queensland are currently limited to sales, warehousing
and distribution. Some have also invested significantly in Queensland research, for
example CSL’s investment in research at the Centre for Immunology and Cancer
Research on a vaccine for cervical cancer.

A number of other companies such as Alchemia, Progen, Protagonist, Polymerat,
Promics, Peplin and Xenome are involved in R&D relating to drug discovery and
development. Q-Pharm, a company recently established by the Queensland Institute of
Medical Research and the University of Queensland, will provide the management of
Phase 1 clinical trials to establish the safety of new drugs, treatments and vaccines and
undertake bioequivalence studies for the reformulation of existing therapeutics.

                                                                                  Page 2 of 6
The increasing importance of the Pharmaceutical industry to Queensland is also shown in
the Queensland Government’s support for the development of the Pharmacy Australia
Centre of Excellence beside the Princess Alexandra Hospital. This Centre will encompass
pharmacy and pharmaceutical education, research, professional societies and industry.

3.0 Government’s role to date

3.1 Industry Development

Queensland government has a range of industry development programs that are available
for Queensland pharmaceutical companies. The Department of State Development’s
State Development Centres (SDCs) also provide business assistance to pharmaceutical
related manufacturing activities and the Investment Attraction Division also seeks
opportunities with major pharmaceutical companies to establish activities in Queensland
that benefit the State and Australia.

Queensland is currently in the process of establishing the Australian Institute for
Bioengineering and Nanotechnology to complement the existing programs for the
development of the biotechnology industry in Queensland such as the Queensland
Institute of Molecular Biosciences and the Biomolecular Science and Drug Discovery

Through the 10-year BioIndustries Strategy and other State Government initiatives, there
has been a focus on expanding our biotechnology, innovation and commercialisation
capabilities.  Concomitant with these activities has been significant progress on
developing our clinical trial capabilities. Consequently there has been significant
expansion in research on developing new therapeutics, establishment of several early
stage companies developing platforms and products and an increase in companies and
organisations supporting, developing and documenting clinical trials.

Also with regard to the bio-industry sector, the Queensland government is currently
finalising the Queensland Biodiscovery Policy. Biodiscovery is defined as the collection
of biological resources to identify valuable molecular or generic information about those
biological resources and to utilise that information in the development of bio-products.
Such products are capable of delivering benefits to Queenslanders and communities
around the world and include improving human health via drugs and treatments for

3.2 As a purchaser of Pharmaceutical products

Queensland Health is a purchaser of a selected range of pharmaceutical products to the
amount of approximately $140 million per annum. Expenditure on pharmaceuticals has
increased by around 10 per cent per annum over recent years, and this trend is unlikely to
abate into the foreseeable future. While the Queensland Government recognises the
commercial imperative for pharmaceutical companies to recoup the costs of
pharmaceutical development, as a purchaser, the Queensland Government is also
interested in minimising the upward unsustainable pressure on pharmaceutical

                                                                                 Page 3 of 6
Queensland Health’s primary focus is on obtaining good quality products at the most
competitive price and makes use of both innovator company products as well as generic
manufacturer products. It is apparent that the introduction of a second supplier or a
generic supplier to the market place helps to reduce the offered price.

3.3 In the facilitation of drug trials

The pharmaceutical industry is unique with such a significant proportion of its turnover
being invested in research. Approximately $45 billion is invested in research globally and
Australia attracts approximately 1% of this spend. Queensland receives approximately
5% of the funds expended in Australia with 20% of it going to Queensland Health due to
the many hospitals involved in late stage pre-marketing clinical trials of developed drugs.
Australia must take steps to be a stronger competitor in attracting more of this research
and investment.

Approximately 90% of the clinical drug trials in Australia are sponsored by pharmaceutical
companies. The health sector recognises that clinical drug trials are an essential step in
the development of safe and effective medications. The beneficiaries of clinical trials are:
i)     the pharmaceutical companies who benefit from product development and
ii)    the health system by increased availability of treatment options, developing
       research capacity and the opportunity for hospital staff to participate in
iii)   the community through greater choice, more effective and safer products and
       protocols; and
iv)    the individual patient through early access to state-of-the-art therapies (although at
       greater risk).

4.0 Addressing the specific terms of reference (PIIP)

4.1 Examine the appropriateness of PIIP

Findings of the Productivity Commission have confirmed that price suppression applicable
to Pharmaceuticals in Australia, compared to OECD countries is significant.       Some
overseas countries also offer tax advantages and government incentives that further
reduce the attractiveness of the Australian environment for investment.

Industry feedback suggests the Factor F Program, which had more funding, was a less
restrictive Program.

Both Astra (prior to becoming AstraZeneca) and Alphapharm, would have significantly
benefited from participating in PIIP. However, there has been a perception that
participation in PIIP could increase intellectual property risk for significant products
developed by companies. Further discussions with companies would be required to
identify whether this is a significant concern and if so how this might be addressed in
future versions of PIIP.

                                                                                     Page 4 of 6
Some companies suggested that the funding could be allocated on a portfolio basis with
larger amounts for major projects and smaller amounts for significant but smaller focused

4.2    Examine the effectiveness of PIIP, by establishing whether PIIP is:

       a) Meeting its policy objectives

       Our discussions with industry revealed that the PIIP scheme’s limited funding and
       its focus on total organisational Production Value Adding (PVA) did not match the
       expectation of some companies. The perceived risk of participation in relation to
       patent protection was greater than what was on offer. Additionally, the high
       standards set by the Therapeutic Goods Administration (TGA), while well regarded
       are set to provide the basis for manufacturing companies to produce drugs of
       global acceptance. However these same standards are also perceived by drug
       suppliers as impediments to showing incremental PVA.

       b) Producing net benefits to the Australian economy as a whole

       The PIIP Scheme offers concessions to international pharmaceutical companies
       when they invest in research and development in Australia with a five-fold leverage
       (for every $5 million spent in Australia on R&D, a company gets $1 million benefit on
       pricing with the PBS). A robust, flexible and a widely applicable incentive plan can
       result in a sustainable industry with substantial economic and social gains for

       It is also the view that unless the quantum of incentives offered for investment was
       reasonably close to the substantial impact of price suppression, there would be
       limited value to Queensland and the Australian Economy.

4.3.   Examine the efficiency of PIIP taking into account all the costs involved with the
       program administration and compliance

       As Queensland has no companies participating in the PIIP, the Queensland
       Government is not in a position to provide further comment on the efficiency of
       PIIP. However, work involved in the preparation of PIIP applications was viewed
       by the Queensland applicants as a significant administration and compliance

4.4    Examine if it is found that intervention in the Pharmaceutical industry is
       justified, in particular

Generally, the Australian PBS applies a fair and consistent approach and is one of the
most equitable models around the world, particularly in terms of fair and affordable access
to effective drugs by most Australians. Not withstanding this, industry suppliers would
prefer a more equitable PBS environment in relation to their revenue. However in the
absence of such a substantial shift in PBS philosophy, we believe that Commonwealth
Government incentives will need to be continued post 2004.

                                                                                    Page 5 of 6
Industry has a preference for the previous “Factor F” program, presumably, due to higher
funding ratios and the lesser emphasis on Production Value Added.

Specific policies and programs need to be more competitive in comparison with other
countries competing for multinational investment funding, which now include developing
nations such as India, along with the traditional rivals in Ireland and Singapore.

                                                                                Page 6 of 6

To top