NEW ZEALAND-AUSTRALIA REGULATORY AGENCY TO RAISE

C O N F I D E N T I A L SECTION 01 OF 02 WELLINGTON 000596 SIPDIS STATE PASS USTR FOR BWEISEL STATE PASS FDA FOR OFFICE OF INTERNATIONAL PROGRAMS/WALTER BATTS AND JULIA HO STATE FOR EAP/ANP AND EB/TPP/BTA/ANA COMMERCE FOR 4530/ITA/MAC/AP/OSAO/GPAINE E.O. 12958: DECL: 07/12/2014 TAGS: ETRD NZ SUBJECT: NEW ZEALAND-AUSTRALIA REGULATORY AGENCY TO RAISE INDUSTRY'S COSTS REF: A. AUCKLAND 118 ¶B. 03 WELLINGTON 1273 ¶C. 03 WELLINGTON 1191 ¶D. 01 WELLINGTON 798 (U) Classified by DCM David R. Burnett. Reasons: 1.5 (b) and (d). ¶1. (C) Summary: U.S. makers of medical devices and dietary and nutritional supplements face the prospect of additional regulatory costs to enter the New Zealand market -- but perhaps not as high as the industry had feared. An Australian-New Zealand authority to regulate therapeutic products in both countries probably will accept U.S. certification of products, and not just European certification, as the industry had expected. On the other hand, the agency will aim to recover all regulatory costs from the industry. Representatives of U.S. manufacturers fear such costs could drive many of their products out of the New Zealand market. ¶2. (U) Meanwhile, the pharmaceutical industry has endorsed the joint authority, while worrying that the agency will ban direct-to-consumer advertising. Such advertising has helped a number of pharmaceutical companies to boost sales of unsubsidized medicines in New Zealand. It has provided one of the few means available in a highly restricted market for pharmaceutical manufacturers to build sales for products that consumers pay for entirely out of pocket. End summary. New regulation -------------- ¶3. (U) The Australian and New Zealand health ministers signed a treaty December 10 to set up a trans-Tasman agency to regulate therapeutic products, including medical devices, prescription and over-the-counter medicines, dietary and nutritional supplements, and cosmetics and toiletries (ref B). When the agency opens its doors in July 2005, it will replace the Australian Therapeutic Goods Administration (TGA) and the New Zealand Medicines and Medical Devices Safety Authority (Medsafe). Both governments are jointly working to establish a framework for the agency and instructions for any necessary legislation. ¶4. (U) For New Zealand, the agency offered a solution to a long-acknowledged deficiency. Medical devices and health-care products have been virtually unregulated in the 
country. Medsafe does evaluate pharmaceuticals before allowing them on the market. An adviser to the health ministers suggested the cost to New Zealand of participating in the joint agency would be less than if it had tried on its own to extend its regulatory authority to devices and other non-drug medical products. Higher costs -------------- ¶5. (C) Nonetheless, the adviser, Selwyn Katene, acknowledged that New Zealand's regulatory costs would increase significantly under the joint agency. For example, the number of New Zealand-based staff members needed by the new agency would be at least double the 35 people who now staff Medsafe. Moreover, Katene noted that all the agency's costs would be passed on to the industry. Fees for registering products would be set to recover the costs of regulation, although Katene said his government recognizes it may need to phase in such fees to alleviate the pain to industry. But with regulation over non-drug products, Katene said, "the industry's halcyon days are over." Many distributors of medical devices and complementary goods expect the higher fees to harm their sales in New Zealand (ref C). They advocate setting fees according to the size of the product's market, with Australia's population being five times that of New Zealand. ¶6. (C) The joint authority initially had intended to require additional documentation and possibly a quality-control audit for products that do not have European certification yet have U.S. Food and Drug Administration (FDA) approval. However, Katene -- who asked that his comments July 9 not be shared with industry -- said New Zealand Minister of Health King had decided that requiring two certification processes was unreasonable. ¶7. (C) That decision should greatly relieve representatives of U.S. medical-device manufacturers, who have argued that additional certification would increase the cost and time for marketing their products. A number of representatives met with King on June 25 and -- according to Katene -- influenced her thinking on the issue. Katene, a New Zealander, serves as secretary to the joint agency's ministerial council, which is composed of the two health ministers. They will appoint the agency's five governing board members. Advertising's future -------------- ¶8. (C) On June 17, the Researched Medicines Industry Association of New Zealand (RMI) -- the pharmaceutical industry association -- announced in a news release its support of the joint agency. Lesley Clarke, RMI's chief executive, said July 9 that the association had long backed the concept of a joint authority, since it would provide one point of entry for pharmaceutical companies to both Australia and New Zealand. RMI issued the news release to bolster parliamentary support for the agency, after the media reported that the agency's compliance requirements could put medical-device and complementary-goods companies out of business. ¶9. (C) However, the pharmaceutical industry worries that the new agency could mean an end to its ability to advertise its unsubsidized prescription medicines directly to New Zealand consumers (ref A). Australia allows only disease-based, awareness-building advertising, with no mention of product names. Some pharmaceutical companies have built a significant private purchase market in New Zealand -- in one case, as much as one-third of its sales -- as a way to counter the limits of a system of government-subsidized sales. ¶10. (C) On that issue, Katene would say only that Minister King had been instructed by the cabinet to "harmonize" with Australia and that a decision for or against direct-to-consumer advertising had not been made. "Harmonization" generally has been thought to refer to New Zealand's adopting the Australian rules, with Australia seeing no need to change. ¶11. (C) Clarke said that, other than Minister King, members of Parliament are supportive of or ambivalent about direct-to-consumer advertising. Only Minister King appears to be adamantly against it, joining a small doctors' group -- and no consumer groups -- that advocates a ban. Clarke predicted that such advertising would continue to be allowed, with a ban requiring the repeal of existing law and with Minister King lacking her colleagues' support. ¶12. (C) Comment: Allowing FDA certification would remove one potentially discriminatory barrier to U.S. products. Post remains concerned, however, about the potential decline in sales of U.S. medical devices and other therapeutic products due to anticipated higher regulatory costs and about the possibility that pharmaceutical companies -- already constrained by New Zealand government policy -- would lose their ability to generate private sales through advertising. Post hopes these concerns could be conveyed in the Trade and Investment Framework Agreement talks with New Zealand scheduled for July 20. Swindells