Is Australia’s Pharmaceutical Benefits Scheme (PBS) sending our success stories overseas?

Australia’s Pharmaceutical Benefits Scheme (PBS) is one of the most unusual commercial environments in global pharmaceuticals. It is admired for affordability, stability and predictability. It is also criticised for the same reasons.

The PBS is designed to keep prices low, to keep access broad, and to keep government expenditure under control. Those objectives shape the economics of every drug sold in Australia. They also explain why many multinational companies (Pfizer, Merck, Bristol Myers Squibb, GSK, AstraZeneca, Novartis, Eli Lilly, Johnson & Johnson and many others) have repeatedly argued that Australia undervalues innovation.

Is this just greedy multinationals not caring about people who need their drugs? Or do they have a right to cry poor – is Australia a market impossible to make a profit in? Well, the answer is somewhere in between and is one that can only come with an understanding of how the PBS works. Specifically,  the way the PBS calculates value, the way it negotiates price, and the way it forces companies to justify every dollar of reimbursement.

How the Pharmaceutical Benefits Scheme works

To understand how drugs make money under the PBS, it helps to start with the basic mechanics. A company seeking PBS listing must demonstrate clinical benefit, cost‑effectiveness, and comparative value against existing therapies. The Pharmaceutical Benefits Advisory Committee (PBAC) assesses the evidence and recommends a price.

The Department of Health then negotiates with the manufacturer. The final price is a reimbursement price, not the ‘market price’. And the reimbursement is shaped by cost‑effectiveness ratios, quality‑adjusted life years (QALYs), comparator pricing, and budget impact. The PBS is not designed to ensure companies can get back every cent they invested in innovation but neither does it disregard it. Instead, iut is designed to reward incremental value relative to what already exists.

This creates a commercial environment where revenue is determined by three variables: the negotiated PBS price, the volume of prescriptions, and the mandatory price reductions that occur over time. The PBS price is often significantly lower than the price a company would charge in an unregulated market. Volume can be high, but it is capped by clinical need. Mandatory price reductions occur at listing anniversaries, at generic entry, and at various statutory triggers. The result is a revenue curve that starts modestly, grows steadily, and then declines structurally. It is predictable, but it is not generous – at least not as generous as it’d be if all our regulators did was say to the companies,’ Name your price’, and went with that.

A frustration, but also a strength

For multinational companies, this predictability is both a strength and a frustration. It is a frustration because the PBS rarely pays what companies believe their drugs are worth. But here’s what they won’t say out loud: It is a strength because revenue is stable and access is broad.

The most common complaint is that Australia’s cost‑effectiveness thresholds are too conservative. The second is that comparator pricing forces new drugs to be priced close to older drugs, even when the new drugs are more effective. The third is that mandatory price reductions erode revenue over time, even when a drug remains clinically valuable.

Pfizer has argued that Australia’s pricing system undervalues breakthrough therapies. Merck has raised concerns about cost‑effectiveness thresholds that do not reflect the value of oncology innovation. Bristol Myers Squibb has criticised the slow pace of reimbursement for immunotherapies. GSK has highlighted the difficulty of pricing vaccines under comparator frameworks. AstraZeneca has pointed to the challenge of pricing targeted therapies when comparators are older, cheaper drugs. Novartis has raised concerns about mandatory price reductions that occur even when a drug has no generic competition. Eli Lilly and Johnson & Johnson have both argued that Australia’s pricing environment discourages investment in local clinical trials.

These criticisms reflect what we already outlined below: a structural tension between a public health system designed to maximise access and a pharmaceutical industry designed to maximise return on investment. The PBS could well be considered conservative in how it values it but we think it is unfair to say it doesn’t recognise innovation at all.

The PBS isn’t the only reason our biotechs go to the US first

Now, our biotech companies have never gone as far as Atlassian did and said our regulations are why it went to the US first. The US market is larger, more flexible, and more commercially rewarding. It is also more fragmented, more complex, and more expensive to operate in. For Australian companies, the US offers three advantages that the PBS cannot match.

The first advantage is price. The US does not have a single national reimbursement system. Prices are negotiated with private insurers, pharmacy benefit managers (PBMs), Medicare, Medicaid, and hospital systems. This fragmentation allows companies to charge higher prices, particularly for specialty drugs, oncology therapies, and rare disease treatments. A drug that might be reimbursed at A$5,000 per course under the PBS could be priced at US$20,000 or more in the US. The revenue difference is transformative for early‑stage companies.

The second advantage is scale. The US market is roughly fifteen times larger than Australia’s. A drug that treats a rare disease might have a few hundred eligible patients in Australia but tens of thousands in the US. A drug that treats a common condition might have millions of eligible patients. Scale magnifies revenue, accelerates breakeven, and supports reinvestment. For Australian companies, scale is not a luxury; it is a necessity.

The third advantage is capital. The US has deeper capital markets, more specialised healthcare investors, and more sophisticated commercialisation infrastructure. Australian companies often list on the ASX, but they raise their largest rounds in the US. They partner with US companies, conduct US trials, and pursue US approvals. The PBS does not influence capital markets directly, but its conservative pricing environment makes the US a more attractive commercialisation target.

These advantages explain why many Australian drug developers (CSL in its early years, ResMed, Clinuvel, Mesoblast, Neuren, Telix and many others) have commercialised in the US first. They also explain why Australian biotech stories often feel American even when the science is Australian. The PBS is part of the story, but the larger part is market size, pricing flexibility, and capital depth.

Bottom line

At the end of the day the fact is that PBS is designed to serve patients, not investors. It is designed to keep prices low, not to reward innovation. It is designed to maximise access, not to maximise revenue. These objectives are appropriate for a public health system, but they limit the commercial appeal of Australia as a first‑launch market.

The tension between the PBS and global pharmaceutical economics will continue. Multinational companies will continue to argue that Australia undervalues innovation. The PBS will continue to argue that it values innovation appropriately. Australian drug developers will continue to commercialise in the US first. The system will continue to balance affordability, access, and innovation.

The answer is strategic duality. Australian companies can develop drugs in Australia, conduct trials globally, commercialise in the US, and then pursue PBS listing once the US market has established value. They can use US pricing to support reinvestment and use PBS listing to support access. They can treat the PBS as a stabiliser rather than a growth engine. They can treat the US as a launchpad rather than a destination.

In this sense, the PBS is not a barrier to innovation. It is a constraint that shapes strategy. It is a system that rewards value rather than novelty. It is a system that prioritises patients rather than investors. For multinational companies, this can be frustrating. For Australian companies, it can be limiting. For the PBS, it is the foundation of a sustainable pharmaceutical ecosystem.