Annual Report - year ended 30 June 2010 (text extract)

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E.59

Pharmaceutical Management Agency

Annual Report

For the year ended 30 June 2010 Presented to the House of Representatives pursuant to Section 150(3) of the Crown Entities Act 2004

CONTENTS

CHAIR’S REPORT............................................................................................................I OVERVIEW OF PHARMAC .............................................................................................1 OUR ROLES AND RESPONSIBILITIES ..........................................................................1 PHARMAC AS A GOOD EMPLOYER .............................................................................2 STATEMENT OF RESPONSIBILITY ...............................................................................4 PHARMACEUTICAL EXPENDITURE ..............................................................................5 PHARMAC’S CONTRIBUTION TO HEALTH OUTCOMES..............................................8 AUDIT REPORT ..............................................................................................................16 STATEMENT OF SERVICE PERFORMANCE ..............................................................19 LEGAL RISK FUND .......................................................................................................25 INTERESTS...................................................................................................................25 STATEMENT OF ACCOUNTING POLICIES .................................................................26 NOTES TO THE FINANCIAL STATEMENTS ................................................................37

PHARMAC Annual Report 2009/10

PHARMAC DIRECTORY (as at 30 June 2010)

Head Office Level 9, Simpl House 40 Mercer Street Wellington

Postal Address PO Box 10-254 Wellington Telephone: (04) 460 4990 Facsimile: (04) 460 4995 Website: www.pharmac.govt.nz

Board Members Richard Waddel – Chair Stuart McLauchlan – Deputy Chair Kura Denness – Chair, Audit Committee Dr David Kerr David Moore Adrienne von Tunzelmann Chief Executive Matthew Brougham

Pharmacology & Therapeutics Advisory Committee Prof Carl Burgess – Chair

Consumer Advisory Committee Sandra Coney – Chair

Auditors Audit New Zealand

Bankers ASB Bank Limited

Solicitors Bell Gully

Insurers Lumley General Insurance (NZ) Ltd American Home Assurance Company QBE Insurance (International) Ltd

PHARMAC Annual Report 2009/10

CHAIR’S REPORT

The past financial year was one in which PHARMAC continued to effectively manage pharmaceutical spending and improve its relationships. PHARMAC defined four broad areas of focus and most of our work during the year fell within these four strategic priorities, as outlined below. Keeping the core strong PHARMAC’s central role continues to be the effective management of pharmaceutical spending. In 2009/10 the Government agreed to a $40 million lift in pharmaceutical funding. This put the pressure on PHARMAC to step up and find funding opportunities that meant PHARMAC’s portion of this new money could be allocated in the most cost-effective way. By year-end PHARMAC had succeeded in funding 20 new medicines or strengths with significant access widening for 25 more. Once again, PHARMAC achieved this enhanced access to medicines, including pharmaceutical cancer treatments, while keeping spending within the budget. Year-end spending on the Community Pharmaceuticals Budget was $693.8 million from a budget of $694 million. New investments during the year included: • • • • • • • • • Bosentan, Iloprost, Sildenafil – treatments for the respiratory condition pulmonary arterial hypertension Bupropion – a newly funded treatment for people wanting to stop smoking Dasatinib – new treatment for people living with chronic myeloid leukaemia Raltegravir – a new antiviral treatment for people with HIV/AIDS Adalimumab – accessed widened to this biologic drug to treat a range of auto-immune conditions Dipyridamole – stroke prevention, as an alternative to low-dose aspirin Rituximab – access widened so it can also be used to treat non-Hodgkin’s lymphoma Pioglitazone – wider access to this treatment for non-insulin dependent diabetes Gemcitabine – wider access to this cancer drug so it can also be funded to treat Hodgkin’s disease and T cell lymphoma.

Together, these investments added to the list of already-funded medicines that ensure New Zealanders continue to have fully funded access to a broad range of medicines, at a cost the country can afford. A full analysis of the impact of these decisions is provided later in the Annual Report. Our Access and Optimal Use work is also a core part of PHARMAC’s role, and the rollout of our flagship One Heart Many Lives (OHML) cardiovascular programme continued during the year. OHML is moving from a regional-based programme to a more national footing with PHARMAC providing the foundation to enable this. During the year we held ‘Boot Camps’ for men involved in the programme to come together, share their experiences and gain encouragement to take the programme back to their communities. There was an almost immediate spin-off with one man from a Boot Camp inspiring his Whanganui PHO to set up a cardiac monitoring programme for men. PHARMAC is also supporting the campaign at the grass roots by taking OHML to community days such as Porirua’s Creekfest, Pasifika at Western Springs, and Auckland and Lower Hutt’s Te Ra o te Raukura festival on Waitangi Day. Aligned with this work in promoting messages around cardiovascular disease, we managed the implementation of the new cardiovascular guidelines on behalf of the Ministry of Health. Ensuring sustainable value from generics Major brand changes affecting more than half a million New Zealanders continued their bedding-in. These primarily affected the gastric medicine omeprazole and cholesterol-lowering simvastatin, but brand changes also occurred for a large number of other medicines. To help support the role pharmacists play, on behalf of DHBs we assisted in establishing a pharmacy payment mechanism, to recognise the work pharmacists put in to help people adjust to brand changes and to recognise the reduction in revenue from the lower cost of generics.

PHARMAC Annual Report 2009/10

Brand changes will continue to be important, so to provide ongoing support we helped negotiate brand switch payments for pharmacists through DHBs’ national pharmacy contract. DHBs will begin funding these during the 2010/11 financial year. We also piloted a campaign to provide information to the public about generics and brand changes in the Bay of Plenty region. Generic medicines continue to promote competition and allow us to negotiate favourable prices for pharmaceuticals. Significant changes during the year included the medicines metoprolol (for heart conditions), pioglitazone (for diabetes), aromatase inhibitors for breast cancer, and blood glucose testing strips for diabetes. Together these helped produce savings of about $40 million this year. Managing `new and innovative’ medicines The Government’s High Cost Highly Specialised Medicines review panel completed its report and made 17 recommendations. Overall, the report supported the broader implementation of the PHARMAC model into other areas, such as hospital medicines, vaccines and medical devices. This echoed the findings of the earlier Ministerial Review Group report. In line with the Panel’s recommendations the Minister subsequently announced a review of the Exceptional Circumstances schemes to be carried out in 2010/11. We also published a revised edition of the pharmaceutical funding Application Guidelines, which aims to clarify the quality and type of information we seek to support funding applications. Better connecting with people The 2009 PHARMAC Forum brought together more than 100 stakeholders to discuss issues and provide input to PHARMAC. The Forum was welcomed by stakeholders and was a significant way for PHARMAC to provide greater accessibility and transparency, and to commit to action in response to suggestions. We are now implementing the actions identified in the Forum workplan. At the Forum, we also released a discussion paper on how we could take steps to improve our engagement with consumers. This began a months-long process which included a review of the Terms of Reference for the Consumer Advisory Committee, and a process to refresh the membership of the Committee. This also aligned with recommendations in Actioning Medicines New Zealand. The information we provide to doctors continued to improve with the expansion of our PHO Newsletter. We remain committed to making continual improvements to our written information, and having two projects shortlisted for 2009 Plain English awards provides further proof that we are heading in the right direction. Our people This year ended the tenure of Richard Waddel who stood down on 31 July 2010 as PHARMAC Board chair, a position he has held since 2000. Richard has been a great leader and supporter of PHARMAC over the years and on behalf of the Board I would like to wish him well for the future. Another long-serving Board member, Adrienne von Tunzelmann, also concluded her term in July 2010. I would like to thank her for her service and contributions and wish her well in future endeavours. The Board continues to have a strong mix of skills through the appointment of Professor Jens Mueller of Waikato University, and Auckland paediatric surgeon Anne Kolbe.

Stuart McLauchlan Chair On behalf of the PHARMAC Board

PHARMAC Annual Report 2009/10

OVERVIEW OF PHARMAC

PHARMAC, a Crown Entity accountable to the Minister of Health, is the government agency that decides which medicines are subsidised. PHARMAC’s objective, as set out in the New Zealand Public Health and Disability Act 2000, is: “To secure for eligible people in need of pharmaceuticals, the best health outcomes that are reasonably achievable from pharmaceutical treatment and from within the amount of funding provided.” District Health Boards (DHBs) have overall responsibility for deciding how health funds are spent to improve the health of their communities. PHARMAC’s role, on behalf of DHBs, is to make funding decisions that lead to the best possible health outcomes being achieved from subsidised medicines. PHARMAC has four main functions: • • • • managing the Pharmaceutical Schedule, the list of subsidised medicines; promoting the responsible use of medicines; assisting DHBs with national procurement initiatives and management of hospital medicines; and managing the Exceptional Circumstances (EC) schemes, which allow for medicines not normally subsidised to be funded for rare and unusual clinical situations.

PHARMAC may also engage in research. For a more detailed description of PHARMAC’s activity, refer to PHARMAC’s Information Sheets (www.pharmac.govt.nz/infosheets).

OUR ROLES AND RESPONSIBILITIES

Board The Board is appointed by, and accountable to, the Minister. The Board is required to comply with the duties and requirements of the Crown Entities Act, and provide high quality, effective governance. The Board has all powers necessary for the governance and management of PHARMAC. All decisions about the operation of PHARMAC are made by or under the authority of the Board. Management The Chief Executive is responsible for managing PHARMAC’s operations. PHARMAC’s staff have a wide range of skills and experience to ensure its effective functioning, including people with health backgrounds (doctors, pharmacists, nurses), public health, economic analysis, business analysis, financial and legal skills. Advisory Committees

Committee Pharmacology and Therapeutics Advisory Committee (PTAC)

Meets

Primary role Provides clinical advice on pharmaceuticals being considered for funding. Members are independently appointed by the Director-General of the Ministry of Health, and have expertise in clinical practice, pharmacology, and critical appraisal. Clinical advice on specialist areas (e.g. cancer, cardiovascular disease). There are 15 sub-committees. Members are appointed by the PHARMAC Board.

Quarterly

PTAC Subcommittees

As required

PHARMAC Annual Report 2009/10

Committee

Meets

Primary role Provides input from a consumer and patient perspective. Members are appointed by the PHARMAC Board. The Committee is comprised of consumers with a mix of backgrounds and interests, including the health of older people, women’s health, and the health needs of M ori and Pacific People.

Consumer Advisory Committee

Twice yearly and as required

Hospital Pharmaceuticals Advisory Committee

As required

Advice on pharmaceuticals used in hospitals.

PHARMAC AS A GOOD EMPLOYER

PHARMAC’s success depends on high calibre employees and, as a result, recruiting and retaining high performing people is critical. PHARMAC has a range of personnel policies to support this, which encompass good employer principles and obligations. A summary of PHARMAC’s good employer obligations, and related activity, is set out below. Leadership, Accountability and Culture PHARMAC has a culture of high performance and high integrity. Organisational values have been developed with staff involvement, and there is a high level of internal commitment to “living the values”. Surveys of the climate and employee engagement are periodically undertaken. Recruitment, Selection and Induction PHARMAC is an equal opportunities employer and aims to recruit the best person in each case. Vacancies are advertised to attract a range of candidates, according to the type of role. Induction programmes are run for all new staff. Employee Development, Promotion and Exit As a small-to-medium agency, most PHARMAC roles offer significant levels of autonomy and responsibility. We aim to develop the skills and careers of our employees, including moving within the organisation, temporarily acting in more senior/management roles, external training, support for formal study, and secondments. Our performance management system includes individual and team goals, and links to organisational priorities, and includes a focus on individual professional development. All departing employees are offered exit interviews. Flexibility and Work Design Provided business needs are met, employees may work flexible hours and work remotely. Seven employees currently work part-time. PHARMAC also offers parental leave entitlements in addition to legal entitlements for both men and women. Remuneration, Recognition and Conditions PHARMAC uses independent job evaluation and market remuneration information to set salary ranges for positions. Remuneration is performance-based and pay ranges are reviewed annually with regard to market changes and Government expectations.

PHARMAC Annual Report 2009/10

Harassment and Bullying Prevention Conduct and behaviour expectations are clearly communicated through policies and at induction of new employees, and are regularly reinforced. Safe and Healthy Environment PHARMAC’s health and safety committee includes employee representatives. Information on health and safety responsibilities is included in induction information for new employees. PHARMAC also supports the health of employees through support for fitness-related activities, and the provision of workstation assessments, flu injections and eye tests. Organisational Makeup In 2009/10, three permanent staff left (4.9% of total staff). The turnover rate showed a significant decrease from the previous year (18% of total staff left). At 30 June 2010, PHARMAC comprised 65 staff with the following broad composition:

Gender Men Women Total

Part time 0 7 7

Full time 29 29 58

Total 29 36 65

PHARMAC Annual Report 2009/10

STATEMENT OF RESPONSIBILITY

The Board of PHARMAC accepts responsibility for: • • the preparation of the annual Financial Statements and Statement of Service Performance and for the judgments in them; and establishing and maintaining a system of internal control designed to provide reasonable assurance as to the integrity and reliability of financial and non financial reporting.

In the opinion of the Board, the Financial Statements and Statement of Service Performance for the year ended 30 June 2010 fairly reflect the financial position and operations of PHARMAC.

Stuart McLauchlan Chair

Kura Denness Chair, Audit Committee

1 October 2010

PHARMAC Annual Report 2009/10

PHARMACEUTICAL EXPENDITURE

Key figures • • • • • • • $693.8 million – yearly pharmaceutical expenditure (on budget) 37.1 million – number of funded prescriptions written (5.0% increase) 3.2 million – number of New Zealanders receiving funded medicines $41.5 million – amount of savings achieved 20 – number of new medicines funded 25 – number of medicines with access widened 149,000 – number of additional patients benefitting from these decisions in a full year

Community Pharmaceutical Expenditure PHARMAC’s key deliverable is the management of the Community Pharmaceutical Budget (Deliverable 1.1), specifically managing expenditure within $694 million for the year to 30 June 2010. Result We estimate that expenditure for the year ending 30 June 2010 is $693.8 million, $200,000 within budget. This represents an increase of $40.8 million of pharmaceutical spending from the previous year’s expenditure. For 2009/10, net spending is made up of gross expenditure of $748.8 million plus $3.6 million of other expenditure, less an estimated $58.6 million expected from suppliers as rebates. Prescribing volume (the number of prescriptions being written) continues to be the main driver of expenditure growth ($51.8 million spending increase). PHARMAC has to work to offset the effect of this continuing volume growth, through savings programmes on currently funded medicines ($35.5 million savings, plus $6.1 million from the tender). This activity has enabled PHARMAC to continue its track record, since 1993, of effectively managing pharmaceutical expenditure, while increasing access to new and existing medicines. The following table summarises the factors that have contributed to this increase.

PHARMAC Annual Report 2009/10

Summary of Pharmaceutical Expenditure 2009/10

Expenditure ($ million) $653.0 Impact in 2009/10 Full year Impact

Expenditure for year ending 30 June 2009 Volume changes Volume increases Volume decreases Increased access to medicines already funded New investments Growth on new investments 2006/07 to 2008/09 Net volume changes Subsidy changes Subsidy increases Subsidy decreases Savings from annual tenders Savings from alternative commercial proposals Delistings Residual subsidy increases from 2008/09 Residual subsidy decreases from 2008/09 Net subsidy changes Additional rebates not included above Total change from previous year Expenditure for year ending 30 June 2010

$51.8 -$9.5 $12.2 $8.1 $11.2 $73.8 $19.7

$7.5 -$35.5 -$5.7 -$0.4 $0.0 $6.2 -$27.4 -$55.2 $22.2 $40.8 $693.8

$10.3 -$46.7 -$10.1 -$0.6 -$2.3

Savings The breakdown of savings across therapeutic groups is shown below ($ million). Note: figures may not add to total due to rounding.

Therapeutic Group Alimentary Tract and Metabolism Blood and Blood Forming Organs Cardiovascular System Dermatologicals Genito-Urinary System Hormone Preparations - Systemic Excluding Contraceptive Hormones Infections - Agents for Systemic Use Musculo-skeletal System Nervous System Oncology Agents and Immunosuppressants Respiratory System and Allergies Sensory Organs Special Foods Tender Tender ACP EC Expenditure Totals Increase Saving Net

$0.41 $2.26 $0.15 $0.03 $0.00 $0.00 $0.10 $0.98 $0.10 $0.09 $0.09 $0.02 $1.74 $1.22 $0.02 $0.30 $7.51

-$3.86 -$0.75 -$10.93 -$1.27 -$0.07 -$1.63 -$2.45 -$7.15 -$3.06 -$2.28 -$0.13 -$0.10 -$1.79 -$5.69 -$0.36 -$41.52

-$3.44 $1.52 -$10.78 -$1.24 -$0.07 -$1.63 -$2.35 -$6.16 -$2.96 -$2.19 -$0.05 -$0.08 -$0.05 -$4.47 -$0.34 $0.30 -$34.01

PHARMAC Annual Report 2009/10

Summary of major changes to the Schedule In 2009/10 PHARMAC funded 20 new medicines and widened access to 25. A summary of the major funding decisions made during the year is provided in the following table:

Product adalimumab alendronate ambrisentan aprepitant azithromycin blood ketone test strips bosentan bupropion cyclosporin A dasatinib dipyridamole enoxaparin (low molecular weight heparin) entecavir fentanyl citrate injections fluticasone propionate nasal spray gemcitabine iloprost mirtazapine multivitamin preparations mycophenolate nicotine replacement therapies pancreatic enzyme phytomenadione (Vitamin K) raltegravir rituximab sildenafil solifenacin somatropin tenofovir tramadol ursodeoxycholic acid valaciclovir vinorelbine zuclopenthixol Used for ankylosing spondylitits Crohn's disease psoriasis psoriatic arthritis osteoporosis pulmonary arterial hypertension nausea associated with chemotherapy cystic fibrosis insulin-dependent diabetes mellitus pulmonary arterial hypertension smoking cessation steroid-resistant nephrotic syndrome chronic myeloid leukemia - resistant or intolerant to imatinib prevention of thrombosis - cerebrovascular disease and aspirin-intolerant patients prevention of pulmonary embolism chronic Hepatitis B (treatment-naive) palliative care (severe pain) allergic rhinitis T-cell lymphoma treatment-resistant Hodgkin's disease pulmonary arterial hypertension moderate to severe depression children with epilepsy on ketogenic diets and vitamin/mineral deficient immunosuppression incl. liver transplant patients smoking cessation pancreatic enzyme deficiency prevention of bleeding in neonates HIV/AIDS Non Hodgkin's lymphoma pulmonary arterial hypertension urinary incontinence adult growth hormone deficiency Hepatitis B acute and chronic pain pregnant women with cholestasis of pregnancy antiviral T-cell lymphoma treatment-resistant Hodgkin's disease schizophrenia & related psychoses Status change widening of access widening of access widening of access widening of access widening of access new listing new listing widening of access new listing new listing new listing widening of access new listing widening of access new listing new listing new listing new listing widening of access widening of access new listing new listing widening of access widening of access widening of access widening of access widening of access new listing widening of access new listing new listing widening of access widening of access new listing widening of access new listing widening of access widening of access new listing

PHARMAC Annual Report 2009/10

PHARMAC’S CONTRIBUTION TO HEALTH OUTCOMES

Outcome 1 – Best possible decisions By freeing up spending on existing medicines and choosing the best new funding options we want to demonstrate that we have made the best possible funding decisions from competing choices. New investment decisions The following tables outline the new investment decisions (new medicines funded and access widened) for the 2009/10 financial year1.

New Listings Month started Funding Decision blood ketone test strips bosentan July 2009 bupropion iloprost sildenafil valaciclovir amsacrine dasatinib August 2009 enoxaparin (low molecular weight heparin) entecavir fentanyl citrate injections September 2009 October 2009 November 2009 January 2010 February 2010 April 2010 May 2010 June 2010 Total

Condition treated insulin-dependent diabetes mellitus pulmonary arterial hypertension smoking cessation pulmonary arterial hypertension pulmonary arterial hypertension antiviral Acute lymphoblastic leukaemia chronic myeloid leukemia – resistant or intolerant to imatinib prevention of pulmonary embolism chronic Hepatitis B (treatment-naive) palliative care (severe pain) schizophrenia & related psychoses nausea associated with chemotherapy HIV/AIDS moderate to severe depression urinary incontinence allergic rhinitis pulmonary arterial hypertension Pain acute and chronic pain

No. new patients in 2009/10 1,001 25 23,612 15 129 76 22 31

Estimated no. new patients in first year 1,001 25 23,612 15 129 76 24 33

Estimated costs in first year $16,141 $929,380 $5,239,176 $617,859 $1,076,901 $49,559 $46,430 $1,192,956

3,266 315 680 112 612 88 1,942 1,922 14,763 0 23 14,891 63,525

3,570 333 859 119 834 97 3,121 5,007 64,203 n.avail n.avail 14,891 117,949

$1,919,808 $764,427 $71,809 $12,871 $209,612 $851,265 $148,481 $307,589 $282,747 n.avail $965 $63,235 $17,789,633

zuclopenthixol aprepitant raltegravir mirtazapine solifenacin fluticasone propionate nasal spray ambrisentan lignocaine gel tramadol

Note that data are not available for all investment decisions. Where no data is available, the medicine has been omitted from these tables.

PHARMAC Annual Report 2009/10 8

In 2009/10, PHARMAC listed 20 new chemicals (plus one additional strength of prednisolone eye drops that results in additional health gains) for approximately 118,000 patients and costing approximately $18 million in the first year (i.e. actual or estimates for 12 months' use following implementation). However, through other cost offsets the net cost to DHBs of these decisions is expected to be substantially less than this.

Widening Access Month started Funding Decision azithromycin Condition treated cystic fibrosis prevention of thrombosis cerebrovascular disease and aspirinintolerant patients children with epilepsy on ketogenic diets and vitamin/mineral deficient immunosuppression incl. liver transplant patients Type 2 diabetes Non Hodgkin's lymphoma ankylosing spondylitits Crohn's disease psoriasis psoriatic arthritis steroid-resistant nephrotic syndrome breast cancer, prostate cancer, endometriosis, precocious puberty, uterine fibroids breast cancer, prostate cancer, endometriosis, precocious puberty, uterine fibroids smoking cessation osteoporosis diabetes management prevention of bleeding in neonates Hepatitis B pregnant women with cholestasis of pregnancy adult growth hormone deficiency No. new patients in 2009/10 93 Estimated no. new patients in first year 93 Estimated costs in first year $20,319

dipyridamole

1,365

$103,089

July 2009

multivitamin preparations

$449

mycophenolate pioglitazone rituximab

103 853 230 172 210 111 127 184

103 853 230 186 226 129 132 214

$273,307 $51,527 $4,229,778 $1,596,529 $1,294,143 $2,096,007 $3,090,463 $270,228

adalimumab

August 2009

cyclosporin A

leuprorelin

$108,242

goserelin September 2009 nicotine replacement therapies alendronate lancets phytomenadione (Vitamin K) tenofovir ursodeoxycholic acid somatropin

249

284

$241,085

19,611 707 472 0 168 24

25,158 1,121 761 n.avail 250 72

$1,763,661 $97,948 $45,903 n.avail $369,260 $3,618

October 2009 December 2009 March 2010

April 2010

$8,100

PHARMAC Annual Report 2009/10

gemcitabine May 2010

vinorelbine

June 2010 Total

pancreatic enzyme

T-cell lymphoma treatment-resistant Hodgkin's disease T-cell lymphoma treatment-resistant Hodgkin's disease pancreatic enzyme deficiency

2 2 1 1 0 24,781

n.avail n.avail n.avail n.avail n.avail 31,319 149,268

$1,437 $479 $225 $75 n.avail $18,422,864 $36,212,497

Overall Total 88,306 Estimated patients and costs in first year are by 12 months' implementation

During the past year PHARMAC has increased access to 25 existing chemicals for an additional 150,000 patients, at an estimated cost of $18 million in the first year. Funding options not taken PHARMAC is developing an online tool (the Application Tracker) that will enable people to view funding proposals under consideration and those progressing through the PHARMAC funding process. The Application Tracker will be launched in late 2010. In the interim, and to satisfy the requirements of the PHARMAC 2009/10 Statement of Intent, a table illustrating the funding options PHARMAC had during 2009/10 that were not implemented during the year is published on www.pharmac.govt.nz the PHARMAC website.

Outcome 2 – Getting more for less We want to demonstrate that we get better value from pharmaceutical spending, through increasing effectiveness of medicines and reducing the cost of medicines. Additional health gains from new funding decisions PHARMAC also assesses the health gains obtained through its investments. PHARMAC uses costutility analysis and measures outcomes in quality adjusted life years (QALYs). This measure enables medicines that perform different functions (such as extending or improving quality of life) to be compared. Data are available for 20 new investments to show the impact on people’s health, and are outlined in the table below.

Estimated no. new patients in first year 834 1,001 25 23,612 33 Estimated pharmaceutical costs in first year $313,292 $16,141 $929,380 $5,239,176 $1,298,177 Estimated QALY gains over timespan (discounted) 1.8 60.1 45.0 1,371.4 48.4

Funding Decision

Condition treated

QALYs from New Listings aprepitant nausea associated with chemotherapy blood ketone test insulin-dependent diabetes strips mellitus bosentan pulmonary arterial hypertension bupropion smoking cessation dasatinib chronic myeloid leukemia resistant or intolerant to imatinib

PHARMAC Annual Report 2009/10

entecavir

chronic Hepatitis B (treatmentnaive) iloprost pulmonary arterial hypertension raltegravir HIV/AIDS sildenafil pulmonary arterial hypertension solifenacin urinary incontinence tramadol acute and chronic pain QALYs from Widening Access ankylosing spondylitits Crohn's disease adalimumab psoriasis psoriatic arthritis dipyridamole prevention of thrombosis cerebrovascular disease and aspirin-intolerant patients multivitamin preparations nicotine replacement therapies rituximab somatropin children with epilepsy on ketogenic diets and vitamin/mineral deficient smoking cessation

333 15 97 129 5,007 14,891 186 226 129 132 1,365

$881,565 $617,859 $1,239,654 $1,076,901 $1,261,567 $758,817 $2,422,283 $3,531,747 $1,539,733 $1,838,499 $103,089

365.3 27.0 95.1 232.2 65.1 1.5 57.7 88.1 45.8 248.7 32.8

$449

0.0

25,158

$2,046,114

1,317.0

Non Hodgkin's lymphoma adult growth hormone deficiency

230 46

$4,229,778 $271,800

202.4 526.7 4,832.1

Total QALYs 73,451 $29,616,022 Estimated patients and costs in first year are by 12 months' implementation

In the first year these medicines were (or will likely be) used by 73,000 patients at a cost of approximately $29.6 million to the Pharmaceutical Schedule (i.e. actual or estimates for 12 months' use following implementation). As these patients keep using the medicines over remaining treatment timespans, they may gain consequent improvements in quality of life and/or increased life-expectancy. These medicines for these patients alone will likely give approximately 4,800 QALYs over remaining treatment timespans more than from standard current treatments, although these extra gains may be as few as 2,800 or as many as 13,500 QALYs (as there is uncertainty with the estimates of individuals’ timespan gains). These are health gains over and above those already available through funded medicines. However, note that not all of the funding decisions had QALY information available, therefore it is likely to be an underestimate of the total QALY gains from the funding decisions in 2009/10. For this financial year’s reporting, the QALY estimates have been discounted (that is, future benefits are valued less than present benefits) at 3.5% – PHARMAC’s annual discount rate for its economic analyses. We plan on providing undiscounted estimates in future years, and will thereby give a more accurate picture of the full extent of the health benefits that should occur in future. Health gains will occur for other funding decisions as well, as will savings to the Health Sector from decreases in hospital use and the need for other health services.

PHARMAC Annual Report 2009/10

Reduced pharmaceutical prices Pharmaceutical prices are continuing to trend downwards, as illustrated by the graph below (excludes rebates)

Negative Inflation - the Pharmaceutical Subsidy Index

1.20 Actual Forecast

1.00

0.80

Index

0.60

P-index

0.40

0.20

0.00

Jun-00

Jun-01

Jun-04

Jun-05

Jun-06

Jun-07

Jun-10

Jun-11

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Year Ending

Outcome 3 – Access to medicines We aim for all New Zealanders to have access to the medicines they need when they need them. The areas identified below help to illustrate that New Zealanders are gaining equitable access to medicines. Absence of post-code prescribing (DHBs’ compliance with Pharmaceutical Schedule rules) We observed at least one DHB (Waikato) funding Mirena outside of its Pharmaceutical Schedule funding criteria. Some DHBs were funding the Emergency Contraceptive Pill through pharmacies without prescriptions. Pharmacists have been required to undertake a training programme. We identified some instances of DHBs funding adalimumab (Humira) outside of Schedule rules. We have written to all DHBs that we consider have breached the Schedule rules, reminding them of their obligation to operate consistently with the Schedule. Number of part-funded medicines where there are no suitable fully funded alternatives Generally speaking, PHARMAC does not part-fund medicines as this maintains a cost barrier for some people to access medicines. However, it arises from time to time as a result of, for example, reference pricing decisions.

PHARMAC Annual Report 2009/10

Dec-11

Jun-12

Jun-02

Jun-03

Jun-08

Jun-09

The list of part-funded medicines for which we consider there are no fully-funded alternatives is outlined in the following table:

Medicine

Formulation

Oral liquid aluminium hydroxide 200 mg with magnesium hydroxide 200 mg and activated simethicone 20 mg per 5 ml Inj 10 mg per ml, 5 ml

Treatment for

Reduce bloating symptoms of indigestion

Comment

Simethicone

No alternative treatment available for flatulence.

Protamine sulphate

Heparininduced bleeding Vasodilatation in vascular disease and circulatory disorders Hydrating skin moisturiser

Funding may not be required through Pharmaceutical Schedule, typically an emergency use product in hospitals – to be considered as part of current Pharmaceutical Subsidy Distribution Review. Given low usage and historical context to funding, ongoing appropriateness of funding will need to be reviewed. Decision to fully-fund urea cream has been made. Funding to commence 1 October 2010.

Oxypentifylline

Tab 400 mg

Urea

Crm 10% Jelly with glacial acetic acid 0.94%, hydroxyquinoline sulphate 0.025%, glycerol 5% and ricinoleic acid 0.75% with applicator Inj 1,500 iu per ml

Acetic acid with hydroxyquinoline and ricinoleic acid

Maintain vaginal pH

Given low usage and historical context to funding, ongoing appropriateness of subsidy needs review.

Hyaluronidase

Increase speed of absorption following injection of fluids

Given low usage and historical context to funding, ongoing appropriateness of subsidy needs review.

Number of out of stocks PHARMAC works alongside pharmaceutical suppliers and actively tracks stock levels to ensure continued uninterrupted medicine supply to New Zealand patients. This includes regular information from suppliers on stock supply issues that may require PHARMAC to seek other suppliers or take other remedial action. Stock management is also covered in contracts with suppliers, with minimum stock holding periods required and liquidated damages and indemnities for failure to supply. In managing delicate stock issues, it is important that any communication is well planned as it can inadvertently lead to stock outages through creating a 'run' on stock. During 2009/10 the most significant supply management issue was the supply of products from Canadian manufacturer Apotex. This arose as a result of a voluntary import ban by Apotex after problems were found at two of its Canadian factories. Supply issues covered a range of products and different strategies were used to manage the stock issues. These included: • • • • Temporarily listing new brands; Using Close Control to ration stock; Sourcing alternative brands through the PHARMAC tender; and Providing advice to clinicians on potential alternatives.

PHARMAC Annual Report 2009/10

Through use of these strategies, and working alongside Apotex, Medsafe and other suppliers, we were able to provide ongoing supply to the New Zealand market. Another potential supply issue arose with the eruption of the Iceland volcano Eyjafjallajokull in March/April 2010. With airspace in Europe closed and many suppliers sourcing stock from Europe (including the influenza vaccine), this presented a potential challenge. PHARMAC proactively contacted companies to confirm that supplies would not be disrupted by the volcanic activity. This was a contingency; however, no further action was required by PHARMAC. Other major stock supply issues during the year included: • • • Docetaxel - InterPharma had its product withdrawn due to quality issues from February to July 2010; an alternative product was supplied with no market disruption. Glycerol suppositories (API) - the supplier continues to have difficulty with the manufacture of this product. Smoking cessation products (multiple suppliers) - following the increase in tobacco excise tax there was a significant increase in demand for smoking cessation product, however through careful stock management the supplier was able to continue supplying. Vistal eye drops (AFT) - alternative treatment options are available. Panadol suppositories – GlaxoSmithKline had a short out-of-stock due to a production delay; however, there was sufficient stock in the supply chain for patients. Multi vitamin (Healtheries) - due to production scheduling, the original supplier was delisted and an alternative listed.

• • •

Outcome 4 – Optimal Use We want medicines to be prescribed, dispensed and used by patients as well as possible. Through evaluating our campaigns we will maintain a strong emphasis on cost-effectiveness of optimal use initiatives. Evaluation of individual campaigns Space to Breathe asthma campaign evaluation - The evaluation indicated that the campaign was successful in increasing awareness, knowledge and confidence in families of children with asthma, increasing recognition of asthma in primary care and increasing the provision of self-management education to families of children with asthma. However, the campaign did not appear to have been effective in increasing the ratio of asthma medicines in the target population (0-5 year olds) or decreasing asthma-related hospitalisations, in particular in improving the ratio of inhaled corticosteroids (ICS and combination ICS/long-acting beta agonists) to short-acting beta agonist medication. These had been key campaign objectives. There were several limitations to the evaluation and data analyses These included the use of SABA (asthma relievers) to ICS (asthma preventers) ratios as an indicator of campaign success, given variations in use of asthma medication at individual level and loss of some campaign effects due to the use of aggregated data. Moreover, the campaign had not been implemented for long enough for sustained behaviour changes to have occurred and be captured by analysis of evaluation data. Despite findings from evaluation activities and limitations in data analyses, we consider it was worthwhile continuing investment in the Space to Breathe campaign over a number of years, as initially intended. Two options have been proposed and approved by PHARMAC’s Board for further investigation. These are prescribing feedback for general practice and repeating the childhood asthma education programme to early childhood educators using a research based approach.

PHARMAC Annual Report 2009/10

Antipsychotics in dementia evaluation - There was a low uptake of the antipsychotics in dementia programme within residential care (36 facilities). Those that took part found the reviews worthwhile; however, some barriers were noted as to why there was low uptake including lack of time, lack of priority placed on the medication management of patients, and lack of clinical staff to perform the reviews. PHARMAC is currently investigating future options for increasing the uptake of the programme and potentially altering the programme structure. Overview of evaluations Overall, evaluations demonstrate that Access and Optimal Use campaigns continue to meet campaign objectives and provide health gains for patients. In addition to the Space to Breathe and Antipsychotics in dementia evaluations outlined above, campaigns demonstrate increased use of pharmaceuticals (e.g. increased use of statin medications in those areas where the One Heart Many Lives campaign is active) and increased uptake of programme activities (e.g. increased awareness of and attendance at the He Rongoa Pai – He Oranga Whanau – M ori staying well with medicines programme). Evaluation of the consumer-focussed generic medicines pilot is not yet complete. The findings will help to determine the approach and expected impact of longer term implementation. The pilot activities were based on formative evaluation findings of the consumer-focussed survey which highlighted the key issues for consumers around generic medicines. We have ceased the Wise Use of Antibiotics campaign for the winter 2010 period to measure what effect there is on key campaign measures, such as consumer perception of the use of antibiotics and antibiotic prescriptions during the winter months. We are approaching the end of the current 5-year contract with bpacNZ to promote the responsible use of pharmaceuticals through continuing medical education programmes with general practitioners, pharmacists and nurses. Evaluation activities are planned and currently under way to measure the effectiveness and impact of the activities that bpacNZ provides. A survey with users of the bpacNZ suite of materials was conducted in November 2009 and found that readers considered the bpacNZ materials to be useful, of high quality, and trustworthy.

Outcome 5 – Confidence We want our decisions to be seen as impartial, carefully considered and fair, and for the public to have confidence in our work. In media commentary, calls to our 0800 number and inward correspondence, there is little comment expressing a lack of confidence in particular PHARMAC decisions. A number of reports have commented favourably on the PHARMAC model. However, the model has been criticised in statements by the pharmaceutical industry (through the Researched Medicines Industry). In consultation around a potentially expanded role for PHARMAC in hospital medicines and devices, there was recognition of the need for greater cost management of hospital medicines and recognition that PHARMAC had performed this role well in the community. However, there were some concerns around PHARMAC’s activity potentially limiting choice or restricting clinicians’ ability to perform their jobs optimally. We will be addressing these concerns through ongoing consultation and engagement with frontline health professionals as we move into an increased role in hospitals.

PHARMAC Annual Report 2009/10

Matters relating to the electronic presentation of the audited financial statements This audit report relates to the financial statements of the Pharmaceutical Management Agency (Pharmac) for the year ended 30 June 2010 included on Pharmac’s website. Pharmac’s Board is responsible for the maintenance and integrity of Pharmac’s website. We have not been engaged to report on the integrity of Pharmac’s website. We accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. The audit report refers only to the financial statements named above. It does not provide an opinion on any other information which may have been hyperlinked to or from the financial statements. If readers of this report are concerned with the inherent risks arising from electronic data communication they should refer to the published hard copy of the audited financial statements as well as the related audit report dated 1 October 2010 to confirm the information included in the audited financial statements presented on this website. Legislation in New Zealand governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.

PHARMAC Annual Report 2009/10

STATEMENT OF SERVICE PERFORMANCE

This Statement of Service Performance (SSP) records how PHARMAC has performed against measures outlined in its 2009/10 Statement of Intent (SOI). PHARMAC has one output class “securing the best achievable health outcomes from pharmaceutical treatment, within the amount of funding provided”. The Statement of Comprehensive Income provides the actual revenue and expenses incurred compared with budget.

Medicines used in the community

Output / activity Measures Results Achieved. Expenditure for the year was $693.8 million. A full breakdown of expenditure is available on pages 5-11. 92% (by line items) of tender decisions were made within 6 months of the tender closing. Achieved. The Community Schedule was published and distributed in line with the published targets. Achieved. Monthly Updates were published and distributed throughout the year. Achieved. The Schedule was available throughout the year with real-time updates available on the PHARMAC website. For the 2009/10 financial year, the percentage of applications processed within target times were: • • • Community EC: 99% Hospital EC: 98% Cancer EC: 97%.

a) 1.1 Manage community pharmaceutical expenditure

Expenditure managed within $694 million as at 30 June 2010.

Make decisions on >90% of line items (excluding bids held open while awaiting Medsafe registration) within 6 months of the tender closing. Produce and distribute the Community Schedule in August 2009, December 2009, and April 2010.

1.2

Produce and distribute the Community Pharmaceutical Schedule

Publish and distribute monthly updates to the Pharmaceutical Schedule.

Provide real-time electronic access to the Schedule via the PHARMAC website.

Applications for Exceptional Circumstances funding are processed in a timely manner. Management of Exceptional Circumstances schemes Target times for processing applications are: • • • Community EC: 1 month Hospital EC: 48 hours Cancer EC: 72 hours.

1.3

PHARMAC Annual Report 2009/10

Medicines used in DHB hospitals

Output / activity Produce and distribute the Hospital Pharmaceutical Schedule

Measures Produce and distribute the Hospital Schedule in July 2009, November 2009 and March 2010.

Results Achieved. The Hospital Schedule was published and distributed in line with the published targets. Achieved (March 2010). Two minor breaches were identified which the suppliers did not pursue. Delay was due to data issues and there is a project under way to improve data delivery from DHBs. Achieved. Savings worth approximately $4.4 million have been achieved. This is in excess of 5% of PCT expenditure. Achieved. Access was widened to rituximab (MabThera) for patients with Indolent Non Hodgkins Lymphoma from 1 July 2009. For the 2009/10 financial year, this decision had a net effect on PCT expenditure of $750,000. New listings were also made for amsacrine and thiotepa (effective 1 August 2009), however these two treatments were previously funded through Cancer Exceptional Circumstances, so no new spending may result. In addition access was widened to gemcitabine and vinorelbine for patients with Tcell Lymphoma and relapsed/refractory Hodgkins Disease from 1 May 2010.For the 2009/10 financial year, this decision had a net effect on PCT expenditure of $42,000.

2.1

2.2

Monitor DHB hospital compliance with restricted brand contracts

Provide a report to DHBs and pharmaceutical suppliers by 31 December 2009.

Achieve savings of 5% on PCT treatments expenditure.

2.3

Manage (some) expenditure on pharmaceutical cancer treatments (PCT)

Make new investments in PCT, with costs in 2009/10 up to an amount agreed with DHBs, plus the value of any savings achieved.

PHARMAC Annual Report 2009/10

Issue a multi-product tender for hospital pharmaceuticals and make decisions on >90% of line items (excluding bids held open while awaiting Medsafe registration) within 6 months of the tender closing.

Achieved. 92% (by line items) of tender decisions were made within 6 months of the tender closing.

2.4

Undertake procurement activity for pharmaceuticals, on behalf of DHB hospitals

Complete a procurement process for volatile anaesthetics by 30 June 2010.

Achieved. A new agreement is expected to save $5 million over 3 years for DHB Hospitals. The agreement led to a brand change which required DHBs to make some changes to devices as part of the agreement. This was coordinated by the incoming supplier and transition to the new brand went very smoothly. Achieved. Main agreements securing supply of the key products were completed in January 2010. Further agreements may be entered into if necessary.

Complete a procurement process for radiological contrast media by 30 June 2010.

Procurement of DHB hospital supplies

Output / activity Management of national procurement contracts Measures Monitor compliance of Hospital only contracts requiring sales data to be provided to PHARMAC by suppliers. Results Achieved. All data has been provided in accordance with contracts. Achieved. Savings have been obtained in volatile anaesthetics, radiological contrast media, and bulk intravenous fluids. We are available to assist with consideration of an extended role for PHARMAC, as required.

3.1

3.2

Continue work in assisting DHBs to procure products used in DHB hospitals

Conduct further work on national procurement as agreed with DHBs or Ministry of Health.

Optimal Use initiatives

Key output / activity Key measures Produce information for patients and/or health professionals to assist with the implementation of pharmaceutical funding decisions. Results Achieved. PHARMAC staff provided information to support brand changes to bendrofluazide, sumatriptan, and aromatase inhibitors. Achieved. Campaign will cease in 2010 and be reviewed at a later date.

4.1

Communication of brand changes

4.2

Wise Use of Antibiotics campaign

Deliver the annual Wise Use of Antibiotics campaign by 31 September 2009.

PHARMAC Annual Report 2009/10

Support the continued implementation of the One Heart Many Lives campaign in Northland and Lakes DHB regions.

Achieved. This is ongoing with the emphasis on community involvement. Community events were held over the summer where heart checks have been offered. People are then followed up and referred back to their GP. Achieved. Two 'Boot Camps' have been held for M ori and Pacific men who have been involved in One Heart Many Lives. This was held to establish these men as ambassadors for their community.

4.3

One Heart Many Lives campaign

Develop the One Heart Many Lives campaign nationally.

One Heart Many Lives national work has extended into Whanganui, Taranaki and Capital and Coast DHBs. One Heart Many Lives events with a Pacific-oriented look and feel have also been underway including as part of the Pasifika festival, Auckland. Achieved. A pilot was completed in August 2009. Main findings indicate increased awareness and knowledge about asthma, triggers and medicines among those who participated in the programme. Delivery of information and resources, along with flexibility around arranging programme delivery were considered vital contributors to the successful reach of the programme. Achieved. Bpac continues to meet contractual deliverables. PHARMAC is working with NZ bpac to develop and implement an evaluation framework for the continuing medical education campaigns.

4.4

Space to Breathe campaign

Pilot the early childhood education programme by December 2009.

Work with bpac to promote the responsible use of pharmaceuticals through continuing medical education programmes.

4.5

Providing information for prescribers on the optimal use of medicines

Work with DHBs through the Safe and Quality Use of Medicines group, the DHB Safe Medication Management Programme and PHARMAC-DHB Joint Working Group.

Achieved. A DHB Joint working group meeting was held in March 2010.

PHARMAC Annual Report 2009/10

4.6

Improving access to medicines by reducing inequalities, including implementation of PHARMAC’s M ori Responsiveness Strategy

Continue the national roll out of He Rongoa Pai, He Oranga Whanau training programme and resources.

Achieved. Five courses have been run so far, with a further four scheduled.

Conduct and analyse a survey of consumers on understanding of and attitudes about generic medicines.

Achieved. The survey gave insights into people’s understanding of generic medicines and ideas for improving understanding. Achieved. A pilot programme has been implemented in the Bay of Plenty region. Evaluation activities will determine national roll out activities as appropriate.

4.7

Information on generic medicines b) Undertake actions as appropriate arising from the analysis of the consumer survey on generic medicines.

Research

Key output / activity Key measures Results Achieved. $322,238 was spent compared to a budget of $778,000. A total of 347 patients were recruited in the financial year to 30 June 2010, compared to a forecast of 732.

5.1

Manage funding for support of the SOLD clinical trial

As per contract milestones.

Quality processes and Decisions

Key output / activity

Key measures

Results Achieved. The PHARMAC Forum was held on 9 October 2009. The resulting action plan has been distributed to attendees, and is being implemented.

6.1

Improve stakeholder engagement

Hold a PHARMAC Forum by 31 December 2009.

PHARMAC Annual Report 2009/10

a) Optimal performance of advisory committees

Consult on changes to the Terms of Reference for the Consumer Advisory Committee by 31 December 2009.

6.2

Achieved but not by the published deadline. Consultation on the revised Consumer Advisory Committee Terms of Reference was delayed while we conducted related work on the optimal way for consumers to participate in PHARMAC’s work. This ended in December 2009. Consultation on changes to the CAC Terms of Reference ended in March 2010. Achieved. A revised Terms of Reference was published in April 2010 and changes are being implemented. Achieved. A memorandum of understanding was agreed with DHBs, and was subject to final signature at year-end.

Implement any changes to the Terms of Reference as required.

6.3

Improve engagement with DHBs

Agree to a Memorandum of Understanding with DHBs by 30 June 2010.

PHARMAC Annual Report 2009/10

LEGAL RISK FUND

In performing its functions, PHARMAC also used its legal risk fund. This fund can be used to initiate or defend legal action PHARMAC is a party to. The PHARMAC Board is responsible for approving access to PHARMAC’s legal risk fund on the basis of defined rules. The existence of a legal risk fund recognises high litigation risk associated with the activity of a government agency (evidenced by PHARMAC’s litigation history). The size and regularity of litigation can be unpredictable and may extend beyond the level of litigation activity a government agency can manage within normal, year-to-year resourcing. A fund can help better manage litigation risk through being able (and without delay) to commence or continue with major or complex legal proceedings. The legal risk fund was accessed for four litigation actions during 2009/10, three of which related to patent litigation activity while the fourth was the Commerce Commission vs AstraZeneca case that PHARMAC was a party to. In the year to 30 June 2010, spending from the Legal Risk Fund was $352,671.05. As part of a commercial agreement as a result of one of these litigations, PHARMAC received payments amounting to $1.5 million which have been used to replenish the fund for the costs incurred in undertaking legal action.

INTERESTS

Section 68(6) of the Crown Entities Act 2004 requires the Board to disclose any interests to which a permission to act has been granted, despite a member being interested in a matter. Below are the relevant disclosures:

Member Details of the Interest Disclosed she was prescribed a chemical under consideration for a funding decision by the Board. Permission granted by Conditions of permission The Board decided she may participate in discussion but not decision making. The Board noted the interest and determined that David should be allowed to remain at the meeting, but that he could not participate in the discussion or decision. Revocation/Changes to Permission The permission granted was a one-off dispensation for the Board meeting in question.

Adrienne von Tunzelmann

Board

David Kerr

Disclosed that, in relation to a chemical that was under consideration for a funding decision by the Board, he was Chair of a provider of retirement villages.

Board

The permission granted was a one-off dispensation for the Board meeting in question.

PHARMAC Annual Report 2009/10

STATEMENT OF ACCOUNTING POLICIES

Reporting entity These are the financial statements of Pharmaceutical Management Agency (PHARMAC), a Crown entity in terms of the Crown Entities Act 2004. PHARMAC acts as an agent of the Crown for the purpose of meeting its obligations in relation to the operation and development of a national Pharmaceutical Schedule. PHARMAC has designated itself as a public benefit entity for the purposes of New Zealand Equivalents to International Financial Reporting Standards (“NZ IFRS”). The financial statements of PHARMAC are for the year ended 30 June 2010. The financial statements were authorised by the Board of PHARMAC on 24 September 2010.

Basis of Preparation The financial statements of PHARMAC have been prepared in accordance with, and comply with: • • • New Zealand generally accepted accounting practices (NZ GAAP); requirements of the Crown Entities Act 2004 and the New Zealand Public Health and Disability Act 2000; New Zealand equivalents to International Financial Reporting Standards (NZ IFRS), as appropriate for public benefit entities.

The financial statements have been prepared on an historical cost basis, and are presented in New Zealand dollars (rounded to the nearest thousand dollars ($000)), being the functional currency of PHARMAC.

Changes in Accounting Policies The accounting policies set out below have been applied consistently to all periods presented in these financial statements. PHARMAC has adopted the following revision to accounting standards during the financial year which has only had a presentational effect: NZ IAS 1 Presentation of Financial Statements (revised 2007) replaces NZ IAS 1 Presentation of Financial Statements (Issued 2004). The revised standard requires information in financial statements to be aggregated on the basis of shared characteristics and introduces a statement of comprehensive income. The statement of comprehensive income will enable readers to analyse changes in equity resulting from non-owner changes separately from transactions with the Crown in its capacity as “owner”. PHARMAC has decided to prepare a single statement of comprehensive income for the year ended 30 June 2010 under the revised standard.

PHARMAC Annual Report 2009/10

Standards, amendments and interpretations issued that are not yet effective and have not been early adopted Standards, amendments and interpretations issued but not yet effective that have not been early adopted, and which are relevant to PHARMAC, include: NZIFRS 9 Financial Instruments will eventually replace NZIAS 39 Financial Instruments: Recognition and Measurement. NZ IAS 39 is being replaced through the following 3 main phases: Phase 1 on the classification measurement of financial assets has been completed and has been published in the new financial instrument standard NZ IFRS 9. NZ IFRS 9 uses a single approach to determine whether a financial asset is measured at amortised cost or fair value, replacing the many different rules in NZ IAS 39. The approach in NZ IFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the many different impairment methods in NZ IAS 39. The new standard is required to be adopted for the year ended 2014. PHARMAC has not yet assessed the effect of the new standard and expects it will not be early adopted. NZIAS 24 Related Party Disclosures (Revised 2009) replaces NZIAS 24 Related Party Disclosures (Issued 2004) and is effective for reporting periods commencing on or after 1 January 2011. The revised related party standards: i. Removes the previous disclosure concessions applied by PHARMAC for arms-length transactions between PHARMAC and entities controlled or significantly influenced by the Crown. The effect of the revised standard is that more information is required to be disclosed about transactions between PHARMAC and entities controlled or significantly influenced by the Crown. Provides clarity on the disclosure of related party transactions with Ministers of the Crown. Further, with the exception of the Minister of Health, PHARMAC will be provided with an exemption from certain disclosure requirements relating to transactions with other Ministers of the Crown. The clarification could result in additional disclosures should there be any related party transactions with Ministers of the Crown. Clarifies that related party transactions include commitments with related parties.

ii.

iii.

PHARMAC has not yet assessed the effect of the new standard and expects it will not be early adopted. Revenue Revenue is measured at the fair value of consideration received. Revenue Crown Revenue earned from the supply of outputs to the Crown is recognised as revenue when earned. Interest Interest income is recognised using the effective interest method.

PHARMAC Annual Report 2009/10

Leases Operating leases An operating lease is a lease that does not transfer substantially all the risks and rewards incidental to ownership of an asset. Lease payments under an operating lease are recognised as an expense on a straight-line basis over the lease term. Financial Instruments Financial assets and financial liabilities are initially measured at fair value plus transaction costs unless they are carried at fair value through profit or loss in which case the transaction costs are recognised in the statement of comprehensive income. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks both domestic and international, other short term, highly liquid investments, with original maturities of three months or less and bank overdrafts. Debtors and Other Receivables Debtors and other receivables are initially measured at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment. Impairment of a receivable is established when there is objective evidence that PHARMAC will not be able to collect amounts due according to the original terms of the receivable. Significant financial difficulties of the debtor and default in payments are considered objective evidence of impairment. The amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted using the original effective interest rate. The carrying amount of the asset is reduced through the use of an impairment provision account and the amount of the loss is recognised in the statement of comprehensive income. Overdue receivables that are renegotiated are reclassified as current. Investments At each balance sheet date PHARMAC assesses whether there is any objective evidence that an investment is impaired. Bank deposits Investments in bank deposits are initially measured at fair value plus transaction costs. After recognition investments in bank deposits are measured at amortised cost using the effective interest method. For bank deposits, impairment is established when there is objective evidence PHARMAC will not be able to collect amounts due according to the original terms of the deposit. Significant financial difficulties of the bank, probability that the bank will enter into bankruptcy, and default in payments are considered indicators that the deposit is impaired. Property, Plant and Equipment Property, plant and equipment consist of leasehold improvements, computer hardware, furniture and office equipment, and are shown at cost less accumulated depreciation and impairment losses.

PHARMAC Annual Report 2009/10

All property, plant and equipment, or groups of assets forming part of a network which are material in aggregate are capitalised and recorded at cost. Any write-down of an item to its recoverable amount is recognised in the statement of comprehensive income. Additions The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits or service potential associated with the item will flow to PHARMAC and the cost of the item can be measured reliably. Disposals Gains and losses on disposal are determined by comparing the proceeds with the carrying amount of the asset. Gains and losses on disposal are included in the statement of comprehensive income. Subsequent Costs Costs incurred subsequent to initial acquisition are capitalised only when it is probable that future economic benefits or service potential associated with the item will flow to PHARMAC and the cost of the item can be measured reliably. Depreciation Depreciation is provided on a straight line basis on all property, plant and equipment, at rates that will write off the cost of the assets to their estimated residual values over their useful lives. The useful lives and associated depreciation rates of major classes of assets have been estimated as follows: Item Leasehold Improvements Office Equipment Computer Hardware Furniture and Fittings Estimated useful life 5 years 2.5 - 5 years 2.5 years 5 years Depreciation rate 20 % 20% - 40% 40% 20%

Leasehold improvements are capitalised and depreciated over the unexpired period of the lease or the estimated remaining useful lives of the improvements, whichever is shorter. Capital work in progress is not depreciated. The total cost of a project is transferred to the asset class on its completion and then depreciated. The residual value and useful life of an asset is reviewed, and adjusted if applicable, at each financial year end. Intangible assets Software acquisition and development Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Costs that are directly associated with the development of software for internal use by PHARMAC are recognised as an intangible asset. Direct costs include the software development, employee costs and an appropriate portion of relevant overheads. Staff training costs are recognised as an expense when incurred. Costs associated with maintaining computer software are recognised as an expense when incurred.

PHARMAC Annual Report 2009/10

Costs associated with the development and maintenance of PHARMAC’s website are recognised as an expense when incurred. Amortisation The carrying value of an intangible asset with a finite life is amortised on a straight-line basis over its useful life. Amortisation begins when the asset is available for use and ceases at the date that the asset is derecognised. The amortisation charge for each period is recognised in the statement of comprehensive income. For computer software (the only identified intangible asset), the useful life is assumed as 2-5 years with a corresponding depreciation rate of 20-50%. Creditors and Other Payables Creditors and other payables are initially measured at fair value and subsequently measured at amortised cost using the effective interest method. Employment Entitlements Short-term employee entitlements Employee entitlements that PHARMAC expects to be settled within 12 months of balance date are measured at nominal values based on accrued entitlements at current rates of pay. These include salaries and wages accrued to balance date, and annual leave earned but not yet taken. PHARMAC recognises a liability and an expense for bonuses where it is contractually bound to pay them. Provisions PHARMAC recognises a provision for future expenditure on uncertain amount or timing where there is a present obligation (either legal or constructive) as a result of a past event, it is probable that an outflow of future economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time, value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as a finance cost. Public Equity Public equity is the Crown’s investment in PHARMAC and is measured as the difference between total assets and total liabilities. Public equity is classified as general funds, Herceptin SOLD trial fund and legal risk fund. Commitments Expenses yet to be incurred on non-cancellable contracts that have been entered into on or before balance date are disclosed as commitments to the extent that there are equally unperformed obligations. Cancellable commitments that have penalty or exit costs explicit in the agreement on exercising that option to cancel are included in the statement of commitments at the value of that penalty or exit cost.

PHARMAC Annual Report 2009/10

Goods and Services Tax (GST) All items in the financial statements are exclusive of GST, except for receivables and payables, which are stated on a GST inclusive basis. Where GST is not recoverable as an input tax, then it is recognised as part of the related asset or expense. The net amount of GST recoverable from, or payable to, the Inland Revenue Department (IRD) is included as part of the receivables or payables in the statement of financial position. The net GST paid to or received from the IRD, including the GST relating to investing and financing activities, is classified as an operating cash flow in the statement of cash flows. Commitments and contingencies are disclosed exclusive of GST. Income Tax PHARMAC is a public authority in terms of the Income Tax Act 2007 and consequently is exempt from income tax. Accordingly no charge for income tax has been provided for. Budget Figures The budget figures are those included in PHARMAC’s 2009/10 Statement of Intent and 2009/10 Output Agreement. The Output Agreement reflects the subsequent reduction in funding from the Crown. Critical accounting estimates and assumptions In preparing these financial statements PHARMAC has made estimates and assumptions concerning the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: • value of property, plant and equipment – at each balance date PHARMAC reviews the useful lives and residual values of its property, plant and equipment, including considering factors such as the physical condition of the asset, expected period of use of the asset by PHARMAC, and expected disposal proceeds from the future sale of the asset. PHARMAC has not made significant changes to past assumptions concerning useful lives and residual values. The carrying amounts of property, plant and equipment are disclosed in note 5.

Critical judgements in applying PHARMAC’s accounting policies Management has exercised no critical judgements in applying PHARMAC’s accounting policies for the period ended 30 June 2010.

PHARMAC Annual Report 2009/10

FINANCIAL STATEMENTS

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 June 2010

Note

Income Crown DHB Other: Interest received Interest received - legal risk fund Other revenue Other revenue - legal risk fund

Actual 2010 $000

13,033 2,820 191 212 490 1,505 18,251

Output Agreement Budget 2010 $000

13,033 2,820 120 0 94 0 16,067

SOI Budget 2010 $000

13,757 2,820 120 0 94 0 16,791

Actual 2009 $000

12,184 3,130 745 318 197 0 16,574

Total Income

Expenditure Operating costs Personnel costs Audit Fees Director Fees Occupancy costs Depreciation & amortisation costs Finance Costs Herceptin trial pharmaceutical costs Herceptin SOLD trial administration Responsible use of pharmaceuticals Total expenditure 5&6 2 1 4,299 6,777 29 131 461 443 10 0 322 4,548 17,020 3,431 6,558 28 129 461 467 10 0 778 5,297 17,159 3,504 6,558 28 129 461 467 10 0 778 5,297 17,232 5,667 6,265 31 129 461 487 8 5,000 295 4,310 22,653

Net (deficit)/surplus for the period Other comprehensive income Total comprehensive income

$1,231 0 $1,231

$(1,092) 0 $(1,092)

$(441) 0 $(441)

$(6,079) 0 $(6,079)

Explanations of significant variances against budget are detailed in note 20. The accompanying accounting policies and notes form part of these financial statements.

PHARMAC Annual Report 2009/10

STATEMENT OF MOVEMENTS IN PUBLIC EQUITY

For the year ended 30 June 2010

Actual 2010 $000 Note

Output Agreement Budget 2010 $000

SOI Budget 2010 $000

Actual 2009 $000

Balance at 1 July Total Comprehensive Income Balance at 30 June 3

7,316 1,231 $8,547

7,292 (1,092) $6,200

6,641 (441) $6,200

13,395 (6,079) $7,316

Explanations of significant variances against budget are detailed in note 20. The accompanying accounting policies and notes form part of these financial statements.

PHARMAC Annual Report 2009/10

STATEMENT OF FINANCIAL POSITION

As at 30 June 2010

Note

Actual 2010 $000

Output Agreement Budget 2010 $000

SOI Budget 2010 $000

Actual 2009 $000

PUBLIC EQUITY Retained earnings and reserves Herceptin SOLD Trial fund Legal risk fund TOTAL PUBLIC EQUITY Represented by: Current assets Cash and cash equivalents Debtors and other receivables Prepayments GST Refund Total current assets Non-current assets Property, plant and equipment Intangible Assets Total non-current assets Total assets Current liabilities Creditors and other payables Employee entitlements GST Payable Total current liabilities Non-current liabilities Provisions Total liabilities Net assets

3 3 3

1,600 971 5,976 $8,547

1,600 0 4,600 $6,200

2,705 0 4,611 $7,316

10,216 53 0 0 10,269

7,503 100 0 0 7,603

7,759 100 0 0 7,859

8,595 112 62 18 8,787

5 6

540 195 735 11,004

580 520 1,100 8,703

580 520 1,100 8,959

789 345 1,134 9,921

7 8

1,694 519 79 2,292

1,838 500 0 2,338

2,224 370 0 2,594

1,965 485 0 2,450

165 2,457 $8,547

165 2,503 $6,200

165 2,759 $6,200

155 2,605 $7,316

Explanations of significant variances against budget are detailed in note 20. The accompanying accounting policies and notes form part of these financial statements.

PHARMAC Annual Report 2009/10

STATEMENT OF CASH FLOWS

For the year ended 30 June 2010

Output Agreement Budget 2010 $000

Actual 2010 $000 Note CASH FLOWS – OPERATING ACTIVITIES Cash was provided from: - Crown - DHBs - Interest - Other Cash was disbursed to: - Payments to suppliers and employees - Goods and services tax (net) Net cash flow from operating activities CASH FLOWS – INVESTING ACTIVITIES - Receipts from sale of investments - Purchase of property, plant and equipment - Purchase of intangible assets - Purchase of investments Net cash flow from investing activities Net increase/(decrease) in cash Cash at the beginning of the year Cash at the end of the year 10

SOI Budget 2010 $000

Actual 2009 $000

13,033 2,820 420 1,995 18,268 (15,560) (1,043) (16,603) 1,665

13,033 2,820 120 94 16,067 (16,292) (400) (16,692) (625)

13,757 2,820 120 0 16,697 (16,271) (400) (16,671) 26

12,184 3,130 802 304 16,420 (23,065) (396) (23,461) (7,041)

0 (21) (23) 0 (44) 1,621 8,595 10,216

0 (300) (167) 0 (467) (1,092) 8,595 7,503

0 (300) (167) 0 (467) (441) 8,200 7,759

2,000 (541) (18) 0 1,441 (5,600) 14,195 8,595

The GST (net) component of operating activities reflects the net GST paid and received. The GST (net) component has been presented on a net basis, as the gross amounts do not provide meaningful information for financial statement purposes.

Explanations of significant variances against budget are detailed in note 20.

The accompanying accounting policies and notes form part of these financial statements.

PHARMAC Annual Report 2009/10

STATEMENT OF COMMITMENTS

As at 30 June 2010 Operating leases as lessee. The future aggregate minimum lease payments to be paid under non-cancellable operating leases are as follows:

Actual 2010 $000

Capital commitments approved and contracted Operating commitments approved and contracted Not later than one year Later than one year and not later than five years Later than five years and not later than ten years Total commitments 461 1,844 1,383 $3,688 -

Actual 2009 $000

461 1,844 1,844 $4,149

The lease expires 24 July 2013 with an additional right of renewal for a further term of five years. It is expected that this right of renewal will be exercised; therefore the commitment is recognised for the full term of 10 years. PHARMAC leases three floors of an office building. Half a floor is sublet due to it being surplus to requirements. The sub-lease expires on 31 October 2011 with a right of renewal until 24 July 2013. PHARMAC has recognised a make good provision of $165,000 (2009 $155,000).

STATEMENT OF CONTINGENT ASSETS AND LIABILITIES

As at 30 June 2010

PHARMAC had no contingent assets at 30 June 2010 (2009: $nil). PHARMAC had no contingent liabilities at 30 June 2010 (2009: $nil). Explanations of significant variances against budget are detailed in note 20. The accompanying accounting policies and notes form part of these financial statements.

PHARMAC Annual Report 2009/10

NOTES TO THE FINANCIAL STATEMENTS

Note 1: Personnel Costs

Actual 2010 $000

Salaries and related costs Employer contributions to defined contribution plans Increase/(decrease) in employee entitlements Total personnel costs 6,553 117 107 $6,777

Actual 2009 $000

6,139 123 3 $6,265

Employer contributions to defined contribution plans include contributions to the State Sector Retirement Savings Scheme and Kiwisaver.

Note 2:

Finance Costs

Actual 2010 $000 Discount unwind on provisions (note 9) $10

Actual 2009 $000 $8

PHARMAC Annual Report 2009/10

Note 3:

Retained earnings

Public Equity

Actual 2010 $000 2,705 1,231 0 (971) (1,365) $1,600 Actual 2009 $000 3,432 (6,079) 5,000 0 352 $2,705

Balance at 1 July Net surplus/(deficit) Net transfer from/(to) international Herceptin trial fund Net transfer from/(to) Herceptin SOLD trial fund Net transfer from/(to) legal risk fund Balance at 30 June

Herceptin SOLD Trial fund

Actual 2010 $000 0 971 $971

Actual 2009 $000 0 0 $0

Balance at 1 July Add:Net transfer from/(to) retained earnings Balance at 30 June

Legal risk fund

Actual 2010 $000 4,611 212 1,505 (352) $5,976

Actual 2009 $000 4,963 318 0 (670) $4,611

Balance at 1 July Add: Interest received transferred from/(to) retained earnings Add: Other Income received transferred from/(to) retained earnings Less: Litigation expenses transferred from/(to) retained earnings Balance at 30 June

Total public equity

$8,547

$7,316

Note 4:

Debtors and Other Receivables

The carrying value of debtors and other receivables approximates their fair value. Debtors are non-interest bearing and generally on 30 day terms. As at 30 June 2010 all overdue receivables have been assessed for impairment.

2010

Gross $000 Not past due Past due 30-60 days Past due 61-90 days Past due > 91 days Total 48 5 0 0 $53 Impairment $000 0 0 0 0 $0 Net $000 48 5 0 0 $53 Gross $000 112 0 0 0 $112

2009

Impairment $000 0 0 0 0 $0 Net $000 112 0 0 0 $112

PHARMAC Annual Report 2009/10

Note 5: Property, Plant and Equipment

Cost at beginning of year Addition s during the year Disposals during the year Accumulated Depreciation beginning of the year Depreciation Elimination Net for on Carrying the year disposals Amount as at 30 June

$000 2009 Furniture and fittings Computer hardware Office equipment Leasehold improvements Fixed asset work in progress 416 978 419 299

$000 55 102 0 472

$000 0 0 0 0

$000 348 830 290 184

$000 32 125 40 103

$000 0 0 0 0

$000 91 125 89 484

0 $629

95 $95

0 $1,652

0 $300

0 $0

$789

Total PPE Assets

$2,207

2010 Furniture and fittings Computer hardware Office equipment Leasehold improvements Fixed asset work in progress Total PPE Assets 471 1080 419 771 0 5 10 1 5 0 0 0 0 0 0 380 955 330 287 0 31 89 34 116 0 0 0 0 0 0 65 46 56 373 0

$2,741

$21

$1,952

$270

$540

Note 6:

Intangible Assets

Cost at beginning of year Additions during the year Disposals during the year Accumulated Amortisation beginning of the year Elimination Amortisation on for the year disposals Net Carrying Amount as at 30 June

$000 2009 Total Intangible Assets 2010 Total Intangible Assets $757

$000 $ 18

$000 $0

$000 $242

$000 $188

$000 $0

$000 $345

$775

$23

$430

$173

$195

PHARMAC Annual Report 2009/10

Note 7:

Creditors and Other Payables

Actual 2010 $000 Actual 2009 $000

1,156 809 $1,965

Creditors Accrued expenses Total trade and other payables

933 761 $1,694

Creditors and other payables are non-interest bearing and are normally settled on 30 day terms. The carrying value of creditors and other payables approximates their fair value.

Note 8:

Employee Entitlements

Actual 2010 $000 Actual 2009 $000

398 87 $485

Annual leave entitlement Accrued salaries and wages Total employee entitlements

401 118 $519

Note 9:

Provisions

Actual 2010 $000 Actual 2009 $000

155 $155

Non-current provisions are represented by: Lease make-good Total provisions Movement for “make good” provision

165 $165

2010 $000

Balance at 1 July Additional provisions made Amount used Unused amounts reversed Discount unwind Balance at 30 June 155 0 0 0 10 $165

2009 $000

94 53 0 0 8 $155

PHARMAC Annual Report 2009/10

Note 10:

Reconciliation of the Net Surplus from Operations with the Net Cash Flows from Operating Activities

Actual 2010 $000 Actual 2009 $000

Net (deficit)/surplus from operations Add non-cash items: Discount on unwind provision Depreciation & Amortisation Total non-cash items Add (less) movements in working capital items: Decrease/(increase) in debtors and other receivables Decrease/(increase) in prepayments (Decrease)/increase in payables (Decrease)/increase in make good provision (Decrease)/increase in employee entitlements (Decrease)/increase in net GST Net movements in working capital items Net cash flow from operating activities

1,231

$(6,079)

10 443 $453

8 487 $495

59 62 (271) 10 34 87 $(19) $1,665

57 (53) (1,196) 61 3 (329) $(1,457) $(7,041)

Note 11:

Related Party Transactions

PHARMAC is a wholly owned entity of the Crown. The Crown, through the Ministry of Health, significantly influences the role of PHARMAC as well as being its major source of revenue. PHARMAC enters into transactions with other government entities on an arm’s length basis. Those transactions that occur within a normal supplier relationship on terms and conditions no more or less favourable than those which it is reasonable to expect PHARMAC would have adopted if dealing with that entity at arm’s length in the same circumstance, are not disclosed. All related party transactions have been entered into on an arms length basis. Other than described above, the value of transactions relating to key management personnel and entities over which they have control or significant influence were as follows:

PHARMAC Annual Report 2009/10

Transaction

Reference

LECG Limited Tui Ora limited NZ Medical Association BPAC NZ

(i) (ii) (iii) (iv)

Transaction value year ended 30 June 2010 2009 $000 $000 15 40 238 232 0 1 0 2,023

Balance outstanding year ended 30 June 2010 2009 $000 $000 0 0 0 25 0 0 0 149

Specific notes on each transaction follow noting that all transactions were carried out, and service providers appointed, in accordance with PHARMAC's procurement processes. (i) David Moore, a PHARMAC Director, works with LECG. Specific consultants at LECG (not David Moore) were contracted to provide some specified policy-related consultancy services to PHARMAC. LECG was the most appropriate provider of services. Payments were negotiated and commensurate with general market rates for the provision of the relevant services. Contracting for the relevant services was a matter for the Chief Executive, not the Board. Accordingly, David Moore (nor any other Director) was not involved in discussions or negotiations related to the services. As specific consultants were contracted, David Moore was also not involved in provision of the services for LECG. (ii) Kura Denness, a PHARMAC Director, is a Director of Tui Ora Limited, a provider of M ori health services. PHARMAC contracted with Tui Ora for the provision of services related to PHARMAC's Space to Breathe initiative. Having conducted a contestable process, it was decided that Tui Ora was the most appropriate provider of services. Tui Ora disclosed the Directorship of Kura Denness in their proposal for the work. Kura Denness also has a standing disclosure on the Board's interest register related to her involvement with Tui Ora. Contracting of the relevant services was a matter for the Chief Executive, not the Board. Accordingly, Kura Denness (nor any other Director) was not involved in discussions or negotiations related to the services. Kura Denness was also not involved in provision of the services for Tui Ora. (iii) David Kerr, a PHARMAC Director, was the President of the NZMA at the time of some payments by PHARMAC to the NZMA for recruitment advertising and access to an online version of the NZ Medical Journal. Payments of this kind are a matter for the Chief Executive, not the Board. Accordingly, David Kerr (nor any other Director) was not involved in discussions or negotiations related to the services. David Kerr was also not involved in provision of the services for NZMA. (iv) David Kerr, a PHARMAC Director, was a member of a bpacNZ advisory group in relation to a one off publication regarding antipsychotics in dementia. The advisory group was disbanded in October 2008. PHARMAC contracts with bpacNZ for a wide range of services related to promoting the optimal use of medicines. Contracting of the relevant services was a matter for the Chief Executive, not the Board. Accordingly, David Kerr (nor any other Director) was not involved in discussions or negotiations related to the services. David Kerr was also not involved in provision of the services for bpacNZ. No provision has been required, nor expense recognised for impairment of receivables from related parties (2009 $nil).

PHARMAC Annual Report 2009/10

Key management personnel compensation Actual 2010 $000 Salaries and other short term employee benefits and directors’ fees Post Employee Benefits 1,487 22 Actual 2009 $000 1,460 18

Key management personnel includes the Chief Executive, Directors and six managers. There have been no changes in numbers of key management personnel from 2009.

Note 12:

Events after the Balance Sheet Date

There have been no significant events after the balance sheet date.

Note 13:

Currency risk

Financial Instrument Risks

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. There are no financial instruments that expose PHARMAC to foreign exchange risk. Interest rate risk Interest rate risk is the risk that the fair value of a financial instrument will fluctuate or the cash flows from a financial instrument will fluctuate, due to changes in market interest rates. PHARMAC has no interest bearing financial instruments and, accordingly, has no exposure to interest rate risk.

Credit risk Credit risk is the risk that a third party will default on its obligation to PHARMAC, causing PHARMAC to incur a loss. In the normal course of its business, credit risk arises from debtors and deposits with banks. PHARMAC’s maximum credit exposure for each class of financial instrument is represented by the total carrying amount of cash and cash equivalents and debtors. There is no collateral held as security against these financial instruments. PHARMAC is only permitted to deposit funds with New Zealand registered banks. PHARMAC does not have a bank overdraft facility. PHARMAC does not have significant concentration of credit risk. Liquidity risk Liquidity risk is the risk that PHARMAC will encounter difficulty raising liquid funds to meet commitments as they fall due. In meeting its liquidity requirements, PHARMAC closely monitors its forecast cash requirements. The table below analyses PHARMAC’s financial liabilities that will be settled based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.

PHARMAC Annual Report 2009/10

2010 Less than 6 months $000 Creditors and other payables

Fair value

2009 Less than 6 months $000 $1,965

$1,694

The carrying amounts of financial instruments as disclosed in the financial statements at 30 June 2010 approximate their fair values.

Note 14:

Categories of Financial Instruments

THE CARRYING AMOUNTS OF FINANCIAL ASSETS AND LIABILITIES ARE AS FOLLOWS:

Financial assets LOANS AND RECEIVABLES Cash and cash equivalents Debtors and other receivables Total loans and receivables Financial Liabilities FINANCIAL LIABILITIES AT AMORTISED COST Trade and other payables Total financial liabilities at amortised cost Actual 2010 $000 1,694 $1, 694 Actual 2009 $000 1,965 $1,965 Actual 2010 $000 10,216 53 $10,269 Actual 2009 $000 8,595 192 $8,787

Note 15:

Capital Management

PHARMAC’s capital is its equity, which comprises accumulated funds and other reserves. Equity is represented by net assets. PHARMAC is subject to the financial management and accountability provisions of the Crown Entities Act 2004, which imposes restrictions in relation to borrowings, acquisition of securities, issuing guarantees and indemnities, and the use of derivatives. PHARMAC manages its equity as a by-product of prudently managing revenues, expenses, assets, liabilities, investments and general financial dealings to ensure PHARMAC effectively achieves its objectives and purpose, whilst remaining a going concern.

PHARMAC Annual Report 2009/10

Note 16:

Employee Remuneration

Total Remuneration and Benefits $000 100 – 110 – 120 – 150 – 160 – 170 – 190 – 200 – 210 – 280 – 110 120 130 160 170 180 200 210 220 290 Number of Employees 2010 6 6 4 2 1 1 1 1 1 2009 7 6 2 1 2 1 1 2 1

Note 17:

Indemnities and Insurance Cover for Board Members and Employees

This information is presented in accordance with sections 152(1) (e) and (f) of the Crown Entities Act 2004. Under individual employment contracts, PHARMAC indemnifies employees should they be found liable in any proceedings for damages arising out of the employee’s reasonable performance of their duties and responsibilities. Insurance cover is provided to board members and employees under Directors and Officers Liability, Personal Accident and Overseas Travel policies.

Note 18:

Board and Committee Fees

Board members received the following fees during the year: Member 2010 $000 36 2 21 18 18 18 18 Fees 2009 $000 36 23 0 18 18 18 18

Richard Waddel (Chair) Prof Gregor Coster Stuart McLauchlan Kura Denness Dr David Kerr David Moore Adrienne von Tunzelmann

PHARMAC Annual Report 2009/10

Note 18 cont: Board and Committee Fees

Advisory committee members paid more than $500 are listed below. Some members do not claim fees. In 2009/10 the following fees were paid. Committee PTAC Carl Burgess Marianne Empson Ian Hosford Sisira Jayathissa George Laking Jim Lello Graham Mills Peter Pillans Paul Tomlinson Mark Weatherall Howard Wilson Anti Infective Simon Biggs Steve Chambers Graham Mills Howard Wilson CaTSOP Scott Babbington Carl Burgess Bernie Fitzharris Tim Hawkins George Laking Lochie Teague Special Foods Simon Chin Jim Lello Kerry McIlroy Jo Stewart Moira Styles John Wyeth Payment ($000)

22 4 16 14 19 18 11 11 4 14 17

Committee Tender Sarah Fitt Jim Lello John McDougall Graham Mills Clare Randall Geoff Savell John Savory David Simpson Paul Tomlinson Respiratory Carl Burgess Tim Christmas Jim Lello John McLachlan Ian Shaw

Payment ($000) 1 2 2 2 1 2 2 1 2

1 1 1 1

1 1 2 1 1

3 1 2 3

Exceptional Circumstances & LSA Mel Brieseman Sharon Kletchko Paul Tomlinson David Waite Howard Wilson Andrew Herbert Diabetes Pat Carlton Nic Crook David Hopcroft Craig Jefferies George Laking Peter Moore Andrea Rooderkerk Bruce Small Paul Tomlinson Mental Health Jan Holmes Ian Hosford Verity Humberstone Jim Lello John Werry Growth Hormone Carl Burgess Ian Holdaway Penelope Hunt Patrick Manning

19 24 11 22 22 11

3 1 4 4 3 1

3 4 2 2 1 1

Analgesic Jonathon Adler Bruce Foggo Lindsay Haas Ian Hosford Howard Wilson Consumer Advisory Sandra Coney Matiu Dickson Maurice Gionotti Anne Fitisemanu Heather Thomson Kate Russell Jennie Michel Vicki Burnett

1 1 1 1 1

1 3 2 3 1

5 2 2 2 1 2 2 2

1 2 2 1

PHARMAC Annual Report 2009/10

Note 19:

Cessation Payments

This information is presented in accordance with section 152(1)(d) of the Crown Entities Act 2004. Cessation payments include payments that the person is entitled to under contract on cessation such as retirement payment, redundancy and gratuities. During the year PHARMAC made no payments to former employees or members in relation to cessation. No cessation payments were made in 2009.

Note 20:

Explanation of Major Variances Against Budget

The Output Agreement reflects a subsequent agreed reduction of funding from the original Statement of Intent (SOI) of $724,000 Crown funding. Explanations of major variances from PHARMAC’s estimated figures in the SOI are as follows: Statement of comprehensive income The net profit for the year ended 30 June 2010 of $1,231,000 is $1,672,000 more than the SOI budgeted deficit of $441,000. The main differences in revenue increasing include an unforeseen $1,500,000 contractual payment allocated by the Board to the Legal Risk Fund and an additional $396,000 in other revenue. The main differences in expenditure reduction include an underspend on the Herceptin SOLD trial of $456,000 owing to patient forecast not being met and delays in implementing responsible use of pharmaceuticals programmes leading to an underspend of $749,000. Expenditure on the cost of litigation increased by $350,000. Statement of financial position Cash and cash equivalents is $2,457,000 more reflecting the budget differences above.

PHARMAC Annual Report 2009/10

ISSN 1179-3759 (Print) ISSN 1179-3767 (Online)

Pharmaceutical Management Agency Level 9, 40 Mercer Street, PO Box 10-254, Wellington 6143, New Zealand Phone: 64 4 460 4990 - Fax: 64 4 460 4995 - www.pharmac.govt.nz - Freephone Information line (9am-5pm weekdays) 0800 66 00 50

Metadata

Title

Annual Report - year ended 30 June 2010

Abstract

E.59 Pharmaceutical Management Agency Annual Report For the year ended 30 June 2010 Presented to the House of Representatives pursuant to Section 150(3) of the Crown Entities Act 2004 CONTENTS CHAIR’S REPORT…I OVERVIEW OF PHARMAC …1 OUR ROLES AND RESPONSIBILITIES…

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