BMI View: Over the forecast period New Zealand will continue to present a gradually deteriorating operating environment for drugmakers. P harmac 's limited and oversubscribed budget, will not allow for significant expansion in the volume and value of the pharmaceutical market as prices are held down. However, if ratified the Trans Pacific Partnership would likely p lace great restraints on Pharmac 's ability to do so and see New Zealand's regulators forced to accept higher prices for high value pharmaceuticals and biologics. However, a rapidly ageing population and already record levels of insurance claims suggests that far greater private sector participation will be necessary to support such prices.
Headline Expenditure Forecasts
Pharmaceuticals : NZD1.45bn (USD1.20bn) in 2014 to NZD1.48bn (USD1.07bn) in 2015; 2% in local currency terms and -11.4% in US dollar terms. Forecast unchanged from last quarter.
Healthcare: NZD22.57bn (USD18.72bn) in 2014 to NZD23.10bn (USD16.63bn) in 2015; 2.3% in local currency terms and -11.1% in US dollar terms. Forecast unchanged from last quarter.
In BMI's Q4 2015 Pharmaceutical Risk/Reward Index (RRIs), New Zealand, sustaining its place from Q3 2015, is ranked ninth out of the 19 markets in the matrix. With a score of 53.1 out of 100, unchanged from the previous three quarters, the country remained just above the regional average of 52.7. A strong and predictable environment of low operating risks are weighed down by a small market and low potential for growth relative to other markets in the region.
Key Trends & Developments
In June 2015, New Zealand's Prime Minister, John Key, stated that the country's residents would not be required to pay more than NZD5 (USD3.48) for subsidised prescriptions, no matter what happened to Pharmac under the Trans Pacific Partnership (TPP). Pharmac is New Zealand's bulk-drug buying agency. The announcement followed a leak of TPP text by Wikileaks, suggesting there were to be greater requirements on Pharmac for transparency in its decision-making and potential for review. The prime minister reaffirmed that the government would not sign anything that under-cut Pharmac in a significant way. The agency claimed to have saved the country's district health boards more than NZD5bn (USD3.48bn) since 2000.
In June 2015, the New Zealand Health Funds Association reported that annual health insurance claim payouts had risen to NZD1bn (USD687.905mn) in the 12-month period ended March 31, the first time this level has been reached in a 12 month period. The amount represented an increase of NZD38mn (USD26.09mn) over FY13/14, and NZD450mn (USD309.5mn), or 82% more than in the 2006 financial year, when pay-outs were USD550mn (USD378.34mn). Government agencies, including the Ministry of Health and Accident Compensation Corporation, provided 82% of the funding for total New Zealand health spending in 2010, while the private sector, including health insurance and New Zealanders paying their own way, contributed 17%.
BMI Economic View
The New Zealand dollar will continue to head lower as a result of declining real interest rate expectations as the economy continues to slow in 2015, prompting the RBNZ to reduce its official cash rate further by 25 bps to 3.00% over the coming months. With Q115 growth slowing sharply, we continue to forecast real GDP growth to moderate to 2.4% in 2015, from 3.3% in 2014, as a result of a worsening dairy sector and a likely decline in construction growth.
BMI Political View
New Zealand is likely to remain one of the most stable states in the world over the coming decade. The government's main challenges are to rein in the budget deficit, improve the business environment to attract greater foreign investment and raise opportunities for the indigenous Maori population. In the realm of foreign policy, New Zealand is likely to continue relying on Australia as its guardian. A key wild card is whether New Zealand deepens political ties with its neighbour, possibly in the form of a confederation.