Pfizer Pty Ltd v Birkett

Legislative Scheme 3 The Pharmaceutical Benefits Scheme is established under Part VII of the Act. It enables certain drugs or medicinal preparations (described in the Act as "pharmaceutical benefits") to be made available to the public under Commonwealth subsidy. Members of the public can obtain these drugs from approved pharmacists on presentation of prescriptions written by approved medical practitioners and on payment of a statutorally fixed charge. The pharmacist is then entitled to receive from the Commonwealth the difference, if any, between the fixed charge and the "Commonwealth price" of the pharmaceutical benefit. The Commonwealth price is determined by the Pharmaceutical Benefits Remuneration Tribunal, a body which is established under s 98A of the Act. 4 The central provision of Part VII is s 85. This provides, in essence, that a drug or medicinal preparation will be available under the PBS if the Minister makes a declaration to that effect. Subs (1) and subs (2), as relevant here, provide as follows: "85 Pharmaceutical benefits (1) Benefits shall be provided by the Commonwealth, in accordance with this Part, in respect of the drugs and medicinal preparations in relation to which this Part applies. (2) Subject to subsection (3), the drugs and medicinal preparations in relation to which this Part applies are: (a) drugs and medicinal preparations that are: (i) declared by the Minister, in writing, to be drugs and medicinal preparations to which this Part applies; or (ii) included in a class of drugs and medicinal preparations declared by the Minister, in writing, to be a class of drugs and medicinal preparations to which this Part applies; and (b) ……" 5 Subs (3), referred to in subs (2), gives the Minister power to determine the strength, unit size and form of drug or medicinal preparation for which benefits are to be provided under Part VII. 6 By subs 85(2A) and s 88A, the Minister has power to specify the circumstances in which prescriptions are to be written in relation to pharmaceutical benefits. 7 Section 85(2AA) empowers the Minister to make a declaration that a particular drug or medicinal preparation will cease to be a pharmaceutical benefit under Part VII. Before doing so the Minister must obtain the written advice of the PBAC (s 85(2AB)). Both the PBAC's advice and the declaration to which it relates are to be laid before each House of Parliament (s 85(2AC)). 8 Under s 101(4) the PBAC has a decisive role to play in the making of a declaration under s 85(2). That section provides as follows: "(4) A drug or medicinal preparation shall not be declared, pursuant to paragraph 85(2)(a), to be a drug or medicinal preparation in relation to which this Part applies unless: (a) the drug or medicinal preparation was, immediately before the commencement of this subsection, a pharmaceutical benefit; or (b) the Committee has recommended to the Minister that it be so declared." 9 The PBAC is established under s 101(1) of the Act. It comprises the following members: · a pharmacist who is an officer of the Department of Health; · 6 medical practitioners appointed by the Minister from 10 practitioners nominated by the Australian Medical Association; · a pharmacist appointed by the Minister from nominees of the Pharmacy Guild of Australia; and · a consumer representative appointed by the Minister. 10 The Minister may also appoint, as additional members of the Committee, a pharmacologist and up to 3 further medical practitioners, at least one of whom must be a nominee of the Doctors' Reform Society. 11 The power of the PBAC to make recommendations to the Minister is set out in s 101(3) of the Act as follows: "The Committee shall make recommendations to the Minister from time to time as to the drugs and medicinal preparations which it considers should be made available as pharmaceutical benefits under this Part and shall advise the Minister upon any other matter concerning the operation of this Part referred to it by the Minister." 12 The power conferred by s 101(3) is qualified by subss 101(3A) to (3C) which provide as follows: "(3A) For the purpose of deciding whether to recommend to the Minister that a drug or medicinal preparation, or a class of drugs and medicinal preparations, be made available as pharmaceutical benefits under this Part, the Committee shall give consideration to the effectiveness and cost of therapy involving the use of the drug, preparation or class, including by comparing the effectiveness and cost of that therapy with that of alternative therapies, whether or not involving the use of other drugs or preparations. (3B) Without limiting the generality of subsection (3A), where therapy involving the use of a particular drug or medicinal preparation, or a class of drugs and medicinal preparations, is substantially more costly than an alternative therapy or alternative therapies, whether or not involving the use of other drugs or preparations, the Committee: (a) shall not recommend to the Minister that the drug, preparation or class be made available as pharmaceutical benefits under this Part unless the Committee is satisfied that the first-mentioned therapy, for some patients, provides a significant improvement in efficacy or reduction of toxicity over the alternative therapy or therapies; and (b) if the Committee does recommend to the Minister that the drug, preparation or class be made available as pharmaceutical benefits under this Part, the Committee shall include in its recommendation a statement that the Committee is satisfied as mentioned in paragraph (a). (3C) Where the Committee is of the opinion that a drug or medicinal preparation, or a class of drugs and medicinal preparations, should be made available as pharmaceutical benefits under this Part, but only in certain circumstances, the Committee shall, in its recommendation under subsection (3), specify those circumstances." 13 Under s 101A the PBAC may establish such sub-committees as it thinks fit to assist it in performing its functions. Sub-committees are to consist of persons appointed by the Committee and/or nominated by the Minister. Two sub-committees have been established under s 101A. They are the Drug Utilization Sub-Committee and the Economics Sub-Committee. The Drug Utilization Sub-Committee monitors the patterns and trends of drug use. The Economics Sub-Committee advises on cost-effectiveness policies and evaluates cost-effectiveness aspects of major submissions to the PBAC.

Factual Background 14 Sildenafil is indicated for the treatment of "organic impotence of neurogenic or vasculogenic origin". It is to be taken orally in tablets of 25, 50 or 100 milligrams. The normal recommended dose is 50 milligrams, to be taken approximately one hour before sexual activity. When it came onto the market there was no other oral therapy for the treatment of erectile dysfunction. The principal therapy previously available was alprostadil, commonly known as Caverject. This is an intracavernosal injection, which is inserted at the base of the penis. It is manufactured by Pharmacia and Upjohn Pty Limited and has been listed on the PBS since 1996. It remains the only treatment for erectile dysfunction available under the PBS. 15 Patients require medical instruction and monitoring when they use alprostadil. Its side-effects, if they occur, are local, including priapism and penile fibrosis. Sildenafil, being an oral preparation, requires no particular medical instruction. It has no local side-effects but has been known to have some general side-effects, including transient hypotension and headaches. 16 On 16 September 1998 Pfizer lodged a submission with the PBAC seeking that sildenafil be listed on the PBS. The submission's executive summary commenced in the following terms: "Optimal therapy in the treatment of erectile dysfunction is characterised by a simple, non-invasive and non-painful treatment. The therapy aims to achieve high success in men's ability to achieve and maintain an erection sufficient for sexual activity with minor side effects - Viagra achieves this objective." 17 The proposed "indication" for sildenafil was specified as "treatment of organic impotence of neurogenic or vasculogenic origin", this being the same indication as for alprostadil. Alprostadil was specified in the submission as the main comparator, being the only therapy for erectile dysfunction listed on the PBS. The submission commented that "it is expected that in practice, most prescribers will replace Caverject with Viagra". 18 The submission described the various clinical trials of sildenafil. It referred to the advantages of sildenafil over alprostadil in the following terms: · "significantly higher patient acceptability of Viagra; · lower overall discontinuation rates; · the natural response to sexual stimulation when taking Viagra; · no complex titration is required; and · no ongoing medical monitoring for Viagra. It is an important part of the management of intracavernosal injection therapy." 19 None of Pfizer's clinical trials had directly compared sildenafil with alprostadil. The submission noted that different outcome measures had been adopted in trials relating to the two preparations and concluded that "[T]here are limitations to comparing the success of [sildenafil] treatment with alternative treatment management strategies". 20 Under "cost analysis" the submission made the following observation: "A cost-effectiveness analysis resulted from the preliminary economic evaluation. The cost per successfully treated male suffering from organic erectile dysfunction using Viagra has been estimated at $1,087. Caverject is estimated to cost $1,330 per successfully treated patient. This represents a saving of $243 or almost 20% less for Viagra than Caverject to achieve continuation of treatment at 12 months." 21 The submission discussed the overall financial implications of listing sildenafil on the PBS. In this context it made the following estimates: "At the proposed dispensed price estimated prescription volumes can be estimated at approximately $53 million in PBS outlays. Approximately $8 million of the estimated expenditure will be offset by a reduction in current Caverject sales (ie 85% of current Caverject expenditure). Therefore the growth in expenditure has been estimated at approximately $45 million in the first year. It has been estimated that PBS outlays will increase to a total of approximately $72 million and a growth in PBS expenditure of $64 million in the second year." 22 Pfizer's submission was in general conformity with guidelines issued by the PBAC in a document entitled Guidelines for the Pharmaceutical Industry on Preparation of Submissions to the Pharmaceutical Benefits Advisory Committee ("the Guidelines"). These Guidelines alert sponsors that major submissions will be assessed at three levels: evaluation by the Pharmaceutical Evaluation Section, consideration by each Economics Sub-Committee member and consideration by each PBAC member. Sponsors are told that it is the executive summary of submissions, not the full submissions, that will be included in the agenda papers for the Economics Sub-Committee and the PBAC meetings. As relevant to the issues in this case, the Guidelines require that details be given of all relevant trials which enable a comparison to be drawn between the proposed drug and its main comparator. They also require that submissions include estimates as to the financial implication for the PBS of the proposed drug being accepted into the Scheme. 23 In accordance with normal procedures, the Health Department's Pharmaceutical Evaluation Section was asked to report on Pfizer's submission. This report, which was described as a "Commentary on the Economic Analyses", was critical of certain aspects of Pfizer's submission. It commented that the submission did not use appropriate outcome measures as the basis of its comparison between siladenafil and alprostadil. It observed that there were many problems in trying to compare the two preparations from the data provided in the submission. It categorised as "not reasonable" Pfizer's claim that sildenafil was more effective and less toxic than alprostadil. Pfizer's submission had estimated that approximately 540,000 males would be eligible for treatment with sildenafil, of whom approximately 15% would be likely to seek treatment, resulting in an eligible population of about 80,000 people. The report criticised the basis upon which the estimate of 540,000 had been reached. It went on to categorise as "not justified and not reasonable" the submission's estimate that only 15% of the eligible population would seek treatment. The report concluded that the submission's estimates of costs to the PBS were likely to be a substantial understatement. It commented that, if Pfizer's estimates were doubled, or quadrupled, the cost to the PBS could be as much as $200 million in the first year. Under the heading of "Overview of the Submission" the report commented: "Generally the submission conforms to the 1995 PBAC Guidelines. It is well-presented with key information easily located by the evaluator. The majority of the submission presents the evidence accurately. The main indication and choice of main comparator are adequately justified although the justification for not providing a preliminary economic evaluation is not adequate (see Section 2.8) The key matters in the submission for consideration by the PBAC are: · the dissimilarity between the trial populations and the population targeted by the proposed listing; · the uncertainty over the relative effectiveness of sildenafil and alprostadil; · the lack of preliminary economic evaluation; · the potential for over-use of sildenafil; · the likely under-estimate of the financial implications of listing sildenafil; and · the inconsistency between the pack size as described in the PI (4 tablets) and that proposed for PBS listing - 5 tablets, equivalent to 1 month's supply, according to page 8 of the submission. All of the above could be addressed by the sponsor in its pre-PBAC response." 24 On 16 November 1998 the secretary of the PBAC, Mr Des Threlfall, sent to Pfizer a copy of the Pharmaceutical Evaluation Section's report, together with an overview of the submission which had been prepared by the PBAC secretariat. Certain passages were deleted or obliterated from the copies which were sent to Pfizer. The full unedited texts later became part of the agenda papers for the PBAC meeting which discussed and rejected Pfizer's submission. The omission of this material from the documents sent to Pfizer is relied upon by Pfizer as a breach of natural justice, and I shall be discussing it later. 25 The furnishing of these reports to Pfizer was part of the normal "pre-PBAC consultation process" whereby sponsors are invited to comment on material which is to be placed before the PBAC when it considers their submission. Pfizer was invited to provide a response by 23 November 1998 which would then be incorporated into the agenda papers for the forthcoming meeting of the Committee. 26 On 23 November 1998 Pfizer provided its response to these documents. The opening passage of its response was in the following terms: "Pfizer is particularly concerned with the content and tone of the Pharmaceutical Evaluation Section (PES) report. It fails to present a balanced view of the clinical evidence as the report overstates the benefits of alprostadil, while being overly critical of the effectiveness of Viagra. The PES comments do not adequately reflect the submission as presented or the issues Pfizer has highlighted within it." 27 The document proceeded to respond to a number of matters raised in the Pharmaceutical Evaluation Section's report. In relation to the report's concern as to the potential for overuse of sildenafil, resulting in significantly higher financial outlay, Pfizer suggested that a special patient contribution might be applied to sildenafil. This would reduce the total cost to government of including the drug on the PBS, whilst still allowing subsidised access to patients with organic erectile dysfunction. 28 One of the steps the PBAC had taken shortly after receiving Pfizer's original submission was to write to the Urological Society of Australasia, seeking advice as to how drugs such as alprostadil or sildenafil might be targeted to the most deserving patients, thus limiting PBS outlays. Pfizer was not told about this letter. Indeed any reference to it was obliterated from the documents which were sent to Pfizer as part of the pre-PBAC consultation process. In the event the Urological Society did not reply until 1 December 1998, which was too late for the reply to be included in the agenda papers for the December PBAC meeting. However it was used in other contexts, and this sequence of events forms a further basis for one of Pfizer's complaints under its breach of natural justice ground. 29 The PBAC met on 3 and 4 December 1998. The Committee decided not to recommend the listing of sildenafil. The minutes of the meeting record the following discussion: "5.4.13 The Committee was of the view this was a poor submission and disputed remarks made by the sponsor claiming the PES evaluation had failed to present a balanced view of the clinical evidence. The strong language adopted in this regard by the sponsor in the pre-PBAC response was not considered helpful. The data as presented were not accepted as supporting the claim that sildenafil is more effective than alprostadil. The evidence indicated that sildenafil is more acceptable, less effective and causes fewer overall side effects compared with alprostadil. 5.4.14 The PBAC's major concern was the predicted cost to the PBS for sildenafil, even if a special patient contribution was applied. Given that the condition to be treated is not life-threatening, the overall cost to the PBS, estimated by the sponsor, of greater than $50 million in year one and $70 million in year two (and likely to be considerable underestimate given the usage of alprostadil and the promotion of the product in Australia) was difficult to support. As a result of these concerns, the Committee concluded that there is no satisfactory means to ensure that use in the community would be clinically justified or cost effective. Recommendation: Reject" 30 On 22 December 1998 Pfizer was informed that its submission had been rejected. The reasons given were as follows: "The data as presented were not accepted as supporting the claim that sildenafil is more effective than alprostadil. The evidence indicates that sildenafil is more acceptable, less effective and causes less overall side effects compared to alprostadil. Given that the condition to be treated is not life-threatening, the overall cost to the PBS of greater than $50 million in year one and $70 million in year two (likely to be a considerable underestimate given the usage of alprostadil) was difficult to support. Given the promotion of the product in Australia, there is no satisfactory means to ensure that use in the community would be clinically justified or cost effective." 31 During the course of considering Pfizer's submission, concerns had been raised in the PBAC that the usage of alprostadil under the PBS was significantly higher than had been estimated. On 9 December 1998 Mr Threlfall, as secretary of the PBAC, wrote to Pharmacia and Upjohn Pty Limited, pointing out the discrepancy between the estimated and actual usage of alprostadil and seeking suggestions as to how the restrictions for use of alprostadil might be revised so as to ensure cost-effective use. 32 On 11 December 1998 Mr Threlfall wrote a similar letter to the president of the Australian Association of Neurologists, seeking advice as to whether a clarification of the existing listing restriction for alprostadil would be feasible, and if so, what specific neurological diseases were likely to be associated with organic impotence. These letters and their various responses were placed before a PBAC meeting in March 1999. The Committee noted that there would be difficulties in tightening the restrictions for alprostadil. It was decided that the restriction should remain unchanged. 33 Pfizer was not told that the PBAC was making these inquiries. The fact that it made them in relation to alprostadil but not sildenafil forms part of Pfizer's complaints in this case. 34 In February 1999 Mr Threlfall had a meeting with representatives of Pfizer in which they discussed the PBAC's concerns about Pfizer's submission. These concerns included: · that an adequate economic analysis should be included in Pfizer's submission; · the possibility of limiting the use of sildenafil under the PBS to a reasonable figure by specifying a tighter restriction for its use, thereby preventing "leakage" outside the target population or, to put it another way, to ensure that the use of sildenafil was restricted to those for whom it was medically indicated; and · the high cost to the PBS of including sildenafil as a pharmaceutical benefit. Mr Threlfall, according to his notes, indicated to Pfizer's representatives that "both the PBAC and the Government (due to the the likely cost, the approval would need to come from Cabinet) would have problems with a drug for this indication to cost $100 million or so." 35 The Guidelinesissued by the PBAC contemplate that sponsors may lodge re-submissions with the PBAC seeking that it re-consider a matter which has been the subject of a previous submission. The Guidelinessuggest that re-submissions should highlight the following aspects: · the main matters of concern to the PBAC under the original submission; · if the sponsor disagrees with the previous decision, the matters in dispute and how the re-submission addresses them; and · all new data, new arguments or new approaches. 36 On 18 March 1999 Pfizer lodged a re-submission with the PBAC, again seeking the inclusion of sildenafil on the PBS. The re-submission primarily sought to deal with the issues which had been identified as being the PBAC's principal concerns under the original submission. 37 The major concern dealt with in the re-submission related to the cost to the PBS of declaring sildenafil to be a pharmaceutical benefit. In order to reduce this cost, Pfizer made a number of suggestions. These included a reduction in the number of tablets to be contained in each Viagra pack, a restriction on the number of prescriptions to be authorised in any six month period, and the imposition of a special patient contribution as envisaged by s 85B of the Act. The document contained financial analyses which estimated the cost to the PBS on the basis of a special patient contribution of $15.00 or $20.00 per prescription. 38 The re-submission named, as main comparators, not only Caverject but also placebo, on the basis that many patients who would commence using sildenafil would not already be using alprostadil, and thus the transfer would be from nothing (placebo) to sildenafil. This addressed one of the concerns Mr Threlfall had expressed to Pfizer's representatives during their meeting in February 1999. 39 As to the effectiveness of sildenafil, the re-submission made the following claims: "The Effectiveness of Viagra The key clinical evidence supports Viagra as being significantly more effective than placebo and at least as effective as Caverject in terms of the proportion of satisfactory attempts at intercourse with each use. This has been determined to be the principal criterion for effectiveness. In addition Viagra offers: · significantly greater patient acceptability than Caverject; · a lower overall discontinuation rates than Caverject; · a natural response to sexual stimulation; and · no requirement for complex training, titration or medical monitoring of patients." 40 The re-submission acknowledged that there were inherent difficulties in comparing sildenafil and alprostadil. However it went on to state that: "best estimates, based on the clinical evidence available, support the proposition that Viagra is at least as effective as Caverject. In addition in real life settings it is more likely that males suffering from ED will continue to use Viagra, thus enabling men to achieve a longer term outcome of near normal sexual function." 41 Following the lodgment of Pfizer's re-submission, a number of meetings took place between representatives of Pfizer and officers of the Pharmaceutical Benefits Branch of the Department of Health. On 25 March 1999 Mr Brett Lennon, Assistant Secretary of the Pharmaceutical Benefits Branch, wrote to the General Manager of Pfizer referring to these discussions. Included in his letter was the following observation: "I note that Pfizer has elected not to follow my suggestion to present its proposal for a special patient contribution for me to take to the Minister for a decision. I believe it a less satisfactory process for the proposed re-submission to ask the PBAC to recommend listing when any special patient contribution arrangements are unknown. In this context, I confirm that the total financial implications of listing sildenafil are relevant to the PBAC's considerations. This is implicit in the requests for this information in Section 4 of the 1995 PBAC Guidelines, and explicit in the list of "other relevant factors" (beyond comparative effectiveness and comparative cost-effectiveness) provided to the APMA at the 1996 and 1997 annual meetings between the PBAC and the APMA." 42 On 17 May 1999 Mr Threlfall, as secretary of the PBAC, commenced the pre-PBAC consultation process by sending to Pfizer two papers which were to be included with agenda material before the Economics Sub-Committee and the PBAC. As previously, these papers consisted of an overview prepared by the PBAC secretariat and a report from the Pharmaceutical Evaluation Section. These documents referred, inter alia, to the various discussions between Pfizer and the PBAC since the rejection of the earlier submission. The PBAC secretariat summarised Pfizer's re-submission in the following terms: "Summary of Submission: No new data have been presented. The resubmission aims to address the Committee's previous concerns, namely the comparative efficacy of alprostadil and sildenafil; the potential for misuse or "leakage", and proposes a reduction in costs. The resubmission has presented a preliminary economic evaluation and no modelled evaluation. The previous submission presented a modelled evaluation but no preliminary economic evaluation." 43 The Pharmaceutical Evaluation Section's report on the re-submission pointed out that Pfizer was still unable to provide clinical data to enable proper comparisons to be made between the effectiveness of alprostadil and sildenafil. In this regard the report made the following comment: "The submission has presented a preliminary economic analysis based on the re-analysis of the clinical data that attempts to estimate the cost per successful attempt at sexual intercourse. …… An incremental analysis of sildenafil versus alprostadil is not presented. Given that the outcomes being compared are different and the economic comparison is also indirect, the analysis is difficult to interpret. The submission has not presented a new modelled evaluation." 44 Under the heading "Overview of the submission" the report commented: "The key matter in the submission for consideration by the PBAC is whether the measures proposed to restrict use are sufficient to ensure that use of sildenafil will be cost-effective. The sponsor may wish to comment on this in its pre-PBAC response." 45 On 24 May 1999 Pfizer provided its pre-PBAC response. In it, Pfizer retreated from the proposition, which had been a central part of its re-submission, that financial savings to the Commonwealth might be gained by imposing a special patient contribution. This was no doubt as a result of discussions held between Pfizer and the Department in which departmental officers had pointed out that the imposition of a special patient contribution, as envisaged in the re-submission, was contrary both to ministerial policy and, more significantly, to the terms of the legislation. The latter is certainly correct: s 85B of the Act allows a special patient contribution to be charged only in relation to drugs which have already been listed on the PBS and as to which there is a dispute between the Minister and the manufacturer as to the appropriate price to be charged by the manufacturer to approved pharmacists. Section 85B enables the Minister to declare a special patient contribution which is, in effect, the difference between the price which the manufacturer seeks for the drug and the amount which has been set as the Commonwealth price. Sildenafil clearly fell outside this provision: it was not already part of the PBS, and there was no suggestion of any dispute between Pfizer and the Minister as to the price to be charged for it. 46 In an endeavour to allay the PBAC's concerns relating to possible inappropriate use or misuse of sildenafil, Pfizer indicated that it had initiated discussions with the Health Insurance Commission in an endeavour to ensure that appropriate safeguards were in place to restrict the use of sildenafil to a maximum of 4 tablets, with a maximum of five repeats within any six month period. The document emphasised that "Viagra is a more clinically efficient socially acceptable therapy with fewer side-effects and with a more favourable incremental cost comparison per unit of effect to the market comparator, Caverject." 47 The Economics Sub-Committee provided a short advice to the PBAC in relation to Pfizer's re-submission. It estimated that the likely number of patients per year using sildenafil would be up to 103,905, saying that the submission contained a possible under-estimate. Under the heading "Main issues (or areas of uncertainty) for PBAC" it made the following comments: "In response to the PBAC's concerns about financial risk to the PBS, the submission offers three relatively blunt instruments to limit use of sildenafil: (i) limiting the number of authorities and repeats; (ii) reducing the pack size from 5 to 4 (with a corresponding drop in price/pack); (iii) introducing a special patient contribution of $15 to $20 (sildenafil does not meet the current criteria for a special patient contribution). However these do not directly assist in targeting use of sildenafil to those patients likely to benefit most as defined in terms of the primary intended outcome of therapy: increased proportions of successful attempts at sexual intercourse. However, even if an appropriate means of targeting sildenafil can be identified, the major issue for the PBAC remains the large extent of leakage around any stipulated restriction." 48 The PBAC considered Pfizer's re-submission at its meeting on 3 and 4 June 1999. It decided to reject it. The minutes of the meeting record the following: "Discussion: 7.2.14 Members noted that there was no new clinical evidence but new calculations were included in the resubmission along with new proposals to limit use. Using a new outcome measure, the resubmission claimed sildenafil is as effective as alprostadil. However, in the absence of any head-to-head trial comparing sildenafil tablets with alprostadil injections and the use of different outcome measures in the trials comparing the individual drugs with placebo, the Committee did not consider that there was sufficient evidence to establish that sildenafil tablets were as effective as alprostadil injections. 7.2.15 Members considered that while the proposal for a special patient co-payment may reduce overall PBS usage, it would not target the drug to the patient groups where use would be medically necessary and cost-effective. Therefore, the proposal was not supported. Similarly, the proposal to limit the number of prescriptions via the authority required mechanism was also not considered to be an effective means to assist better targeting. 7.2.16 Members also noted that the promotional activities and media coverage relating to sildenafil tablets have meant that individuals likely to use sildenafil are well aware of the availability of the drug on the market and that there was already considerable use of the drug via the private prescription market. This was supported by the comments in the pre-PBAC response which reported that sildenafil tablets have achieved a market penetration rate of 4% of eligible patients without PBS listing, as compared with the sponsor's predicted rate of 9% if listing were achieved. Thus, leakage outside of the proposed restriction was of real concern. 7.2.17 The Committee considered that the cost to the PBS would be unacceptable because it would not be possible to restrict use by practicable and acceptable measures to situations that were medically necessary and cost-effective. Thus, the additional costs to the PBS would be unlikely to be confined to between $10 and $19 million as estimated by the submission. 7.2.18 The Committee noted that in its pre-PBAC response, the sponsor stated that it had gained approval in principle from the HIC to provide appropriate assistance to upgrade the HIC's computer software to facilitate the monitoring and enforcement of the proposed restriction. However, this was not considered to be an appropriate solution. 7.2.19 The Committee also noted that intracavernosal alprostadil, an effective preparation which was more likely to be able to be restricted to situations where use is clinically justified and cost-effective, remained available and appeared to be meeting the needs of the target population. Therefore, in view of the concerns outlined above, members concluded that the application should be rejected. Recommendation: Reject" 49 In essence, these minutes indicate that the PBAC, in rejecting Pfizer's submission, relied upon three propositions: (1) Given that the submission provided insufficient material to enable a direct comparison to be drawn between sildenafil and alprostadil, there was inadequate evidence to establish that sildenafil was as effective as alprostadil. (2) The Committee was concerned with costs issues. In this regard it noted the following matters: · that, given the publicity about sildenafil, it was unlikely that its use could be restricted to patients for whom it was medically indicated; · the measures proposed by Pfizer were unlikely to effectively address this problem; and · this being the case, the cost to the PBS of listing sildenafil would be unacceptable. (3) That alprostadil remained effective and available and appeared to be meeting the needs of the target population. Its use was more likely to be able to be restricted to patients for whom the drug was indicated. 50 On 24 June 1999 Pfizer was advised that its re-submission had been rejected. This was probably no surprise to it, for there had already been considerable media publicity about the matter. On 18 June 1999 the PBAC had issued a press statement in which the PBAC's chair, Professor Don Birkett, purported to recount the reasons why sildenafil had been rejected for listing on the PBS. Pfizer's counsel, Mr Robertson SC, sought to rely upon statements made by Professor Birkett in this press release and elsewhere, to establish that the PBAC relied upon irrelevant or impermissible material in reaching its decision. He urged that it is reasonably open to find that Professor Birkett was authorised by the PBAC to make statements on its behalf in relation to this matter (Evidence Act 1995 (Cth), s 87). I accept this to be the case. However, given (1) that the Committee's decisions are taken by majority vote; (2) that there were full minutes taken of the meeting on 3 and 4 June; and (3) that a detailed s 13 statement has been provided setting out the reasons for the Committee's decision, I think it is inappropriate in these proceedings to reply on extraneous material such as Professor Birkett's media statements to support a submission that the PBAC took irrelevant considerations into account. In other words, I regard the media releases as of such little weight, having regard to the balance of the evidence, that I do not propose to have any particular regard to them. 51 I should emphasise that this will make no difference to the outcome of these proceedings. Professor Birkett's statements are, in essence, merely embellishments on material that is already in the minutes and/or the s 13 statement. 52 The s 13 statement was provided by Mr Threlfall to Pfizer on 30 July 1999. It is a fairly lengthy document and I do not propose to reproduce it in full. However the "Reasons for the Decision" are set out, concisely, as follows: "4.3 In the absence of any head to head trial directly comparing sildenafil tablets with alprostadil injections and the use of different outcome measures in the trials comparing the individual drugs with placebo, the evidence did not establish that sildenafil tablets were as effective as alprostadil injections. 4.4 The submission under consideration did not demonstrate that the actual cost to PBS could be confined by practicable and acceptable measures to between $10 million and $19 million as claimed by the sponsor, particularly in view of the history of use of alprostadil injections under the PBS and the current use of sildenafil tablets in the private prescription market. 4.5 Alprostadil injections have been accepted by the Committee as producing a high degree of effectiveness and are available under the PBS to treat patients where use is accepted by the Committee to be clinically necessary and where use is cost effective." 53 I now come to discuss the various grounds relied upon by Pfizer. 54 The grounds set out in the application for review are expansive, and in many cases repetitive. In essence, the matters relied upon by the applicant raise the following grounds of review under s 5 of the ADJR Act: · that in reaching its decision the PBAC took into account irrelevant considerations (ss 5(1)(e) and 5(2)(a) ADJR Act); · that it failed to take into account relevant considerations (ss 5(1)(e) and 5(2)(b)); · that it breached the rules of natural justice (s 5(1)(a)); and · that the decision was so unreasonable that no reasonable person could have reached it (ss 5(1)(e) and 5(2)(g)). 55 I shall deal with each of these in turn.

Did the PBAC take into account irrelevant considerations? 56 It is submitted on behalf of Pfizer that the considerations to which the PBAC may have regard when deciding whether or not to make a recommendation under s 101(3) are confined to the following matters: · Matters contained in s 101(3), as extended by s 101(3A) and/or · Matters within the technical expertise of PBAC members. 57 Mr Robertson, on behalf of Pfizer points out that the PBAC, as a committee of experts, was established to advise the Minister as to the drugs which should appropriately be included in the PBS. Its considerations at that time were confined to medical issues, as the legislative history (discussed later) shows. The scope of the Committee's brief was expanded in 1987, with the enactment of subsections 101(3A), (3B) and (3C). These provisions enabled the Committee to consider not only the efficacy of the drug under consideration, but also obliged it to consider the cost of the drug, including a comparison of its cost with that of alternative therapies. "Cost" in this context means the cost of the individual therapy, according to Mr Robertson's submission. The PBAC failed in this case to confine its considerations to these issues, the submission proceeds. In particular the Committee erred in taking the following matters into consideration: (1) the total cost to the Commonwealth of including sildenafil on the PBS; (2) the potential for "misuse" or "overuse" or "leakage" as a result of sildenafil being prescribed in circumstances where its use was not clinically necessary; and (3) other "political" considerations, such as the characterisation of sildenafil as a "lifestyle" treatment; and that the price of sildenafil, if it were declared, would need to be defended in Parliament. 58 It is difficult to separate the issues relating to the first two considerations mentioned above. This is because the PBAC's concerns relating to the likely use of sildenafil by people for whom it was not medically indicated (variously described as the "misuse" or "overuse" or "leakage" issue) were inextricably linked with its concern about the overall cost to government of the listing of sildenafil on the PBS. If it was legitimate for the PBAC to have regard to the overall cost of listing sildenafil, then the "overuse" issue, being integral to the Committee's considerations on the cost issue, must also have been legitimate. Conversely, as I shall discuss later, any consideration of the "leakage" issue will inevitably lead into considerations relating to the overall cost to the PBAC of the listing of the drug in question. 59 There is no dispute that the PBAC took into account the overall cost to Government of the listing of sildenafil on the PBS. Indeed it was one of the decisive issues which led to the rejection of Pfizer's application. Moreover the Committee's concerns on this issue were communicated to Pfizer from the outset, and Pfizer attempted to meet these concerns in its submissions. The real question is whether this was a legitimate concern of the PBAC's, given the statutory framework under which the Committee operated. 60 The general rule, for which there is much authority, is that a discretion conferred without any express qualification is unconfined except insofar as limitations are to be implied from the context, scope and purpose of the statute which creates it: The Queen v The Australian Broadcasting Tribunal; Ex parte 2HD Pty Ltd (1979) 144 CLR 45; Murphyores Incorporated Pty Ltd v Commonwealth (1976) 136 CLR 1; Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24. Or, as the majority of the High Court put it in O'Sullivan v Farrer (1989) 168 CLR 210 at 216: "Where a power to decide is conferred by statute, a general discretion, confined only by the scope and purposes of the legislation, will ordinarily be implied if the context (including the subject-matter to be decided) provides no positive indication of the considerations by reference to which a decision is to be made." 61 It is Pfizer's submission that the discretion to be exercised by the PBAC under s 101(3) of the Act is not unconfined. It is confined both by the express provisions of ss 101(3) and 101(3A), and by the scheme of the legislation. As to the latter, Mr Robertson points out that in each of the authorities referred to above, the decision under review was made by the ultimate decision-maker. The situation here, it is urged, is quite different. The PBAC's decision is merely the first step in a two-stage process. Using the particular expertise of its members, the PBAC makes a recommendation to the Minister as to medical issues in relation to drugs which are being considered for inclusion in the PBS. Other issues, including the financial consequences of including the drug in the Scheme, are for the Minister to take into account when deciding whether to make a declaration, pursuant to s 85(2)(a), that the drug in question is to be a "pharmaceutical benefit" under the Act. These issues, which are of a political or public interest nature, are, Mr Robertson urges, appropriate matters for consideration by the Minister. However the scheme of the legislation is such that, unless the PBAC makes a positive recommendation that a drug be included in the PBS, the Minister will be denied the opportunity of considering these matters. For under s 101(4) of the Act, the Minister may only make a declaration under s 85(2)(a) if the PBAC has recommended that this be done. The statutory scheme thus makes it clear, Mr Robertson urges, that there is to be a division of functions between the PBAC on the one hand and the Minister on the other. The PBAC is to consider medical issues relating to drugs which are being considered for inclusion in the Scheme. Pursuant to s 101(3A) this will include an assessment of the effectiveness and cost of the drug in question and a comparison with the effectiveness and cost of alternative therapies. The "cost of therapy" in this context is the cost of the individual therapy, rather than the overall cost to the PBS which might flow from the making of a declaration under s 85(2)(a). This last matter is, to repeat Mr Robertson's submission, appropriately a matter for consideration by the Minister after the PBAC has determined the matters required under subss 101(3) and (3A). 62 At first sight there is a beguiling simplicity and logic to the scheme posited by Mr Robertson. However when one explores the details of the situation, and particularly the tasks which the PBAC is obliged to undertake under s 101(3A), it becomes apparent that the respective roles of the committee and the Minister are not at all simple, and that the scheme proposed by Mr Robertson is not necessarily the most logical or efficient. 63 Mr Robertson suggests that several factors point to the construction of the legislation for which he urges. They are: · the two-stage decision-making process imposed under the Act, whereby the Minister cannot consider the matters which should be relevant to his consideration unless he has received a positive recommendation from the PBAC; · the legislative history of Part VII of the Act makes it clear, Mr Robertson says, that the PBAC's considerations were intended to be confined to the effectiveness and cost of individual treatment; · similarly, the terms of s 101(3A) make it clear that the "cost of therapy" to be considered by the PBAC means the cost of individual therapy; and · the highly specialised expertise of PBAC members indicates that the Committee's considerations were intended to be confined to matters within those fields of expertise. 64 Mr Robertson's submissions as to the effect of the two-stage decision making process have already been referred to. The second matter he points to, namely the legislative history of Part VII, merits some discussion, although, as will be seen, it provides no immediate answer to the issues under discussion here. 65 The Pharmaceutical Benefits Scheme had its origins in the Pharmaceutical Benefits Act 1944 (Cth) which was held to be unconstitutional in Attorney-General (Vic) v Commonwealth (1946) 71 CLR 237. The Constitution Alteration (Social Services) Act 1946 (Cth) inserted a new s 51(xxiiiA) into the Constitution giving the Commonwealth Parliament to make laws with respect to, amongst other things, "pharmaceutical, sickness and hospital benefits". 66 When the current Act was first passed in 1953, the PBS provided subsidies for life-saving drugs to the whole of Australian community. Pensioners received subsidies for all drugs listed in the British Pharmacopoeia. The role of the PBAC, which was established under the 1953 Act, was generally to provide advice as to which drugs should be classified as life-saving. 67 The PBAC as established under the 1953 Act had a slightly different membership from the present Committee. It consisted of four medical experts, one pharmacologist and two chemists, one of whom was to be a departmental officer. As to the PBAC's function, s 101(3) (quoted earlier) was enacted in its present form in the original enactment. Section 101(4) has changed in form but not in substance. In 1953, as now, the Minister could only prescribe a drug or medicinal preparation as a pharmaceutical benefit "in accordance with a recommendation of the PBAC". The second reading speech of the then Minister, Sir Earle Page (12 November 1953 at p161) described the role of the Committee as follows: "Determination of appropriate items of free life-saving drugs is a specialized technical and expert matter. The drugs to be recommended for inclusion must be decided on medical grounds alone. A specialist advisory committee, therefore, has been appointed by regulation and will now be endorsed by statute to carry out this function. The bill provides, in clause 100, that additional drugs or medicines shall not be prescribed as general pharmaceutical benefits, except in accordance with a recommendation of the committee to the Minister. It must be the experts who decide the proper drugs to be used. This specialist advisory drug committee, officially called the Pharmaceutical Benefits Advisory Committee, consists of four medical experts, one chemist from the Department of Health, one chemist chosen from a panel nominated by the Pharmaceutical Service Guild of Australia, and one pharmacologist." 68 Mr Robertson relies upon this statement as emphasising the limited role of the PBAC as a body which was intended to consider only medical issues in relation to the inclusion of drugs in the PBS. Mr Downes QC, for the PBAC, points out that nearly half a century has passed since then. In the meantime, the role of the PBAC has changed significantly, as the subsequent legislative history shows. 69 In 1959 the Act was amended so as to alter the basis upon which pharmaceutical benefits were to be made available to the public. The pensioner scheme, whereby pensioners received a full range of drugs without charge, was continued unchanged. The range of pharmaceutical benefits under the general scheme was substantially widened but made subject to a charge of five shillings for all persons, other than pensioners, obtaining drugs from this general list. The PBAC maintained its role of advising which drugs should be included in the expanded list. 70 It is clear from the second reading speech that these changes were largely occasioned by cost concerns. The Minister pointed out that the cost of operating the PBS had increased from Ł7,600,000 in 1951/52 to Ł21,000,000 in 1958/59. At this rate, the Minister commented, the cost of providing pharmaceutical benefits would soon dominate the entire national health service, leaving correspondingly less room for manoeuvre or improvements in other directions. 71 In 1961 the constitution of the PBAC was enlarged so as to consist of six rather than four medical practitioners. The basis for the amendment was described by the then Minister, Mr Cameron, in the following terms (13 April 1961): "The bill also provides for an amendment of the constitution of the Pharmaceutical Benefits Advisory Committee. This is the expert committee which advises the Government on what drugs and medicines are to be listed as pharmaceutical benefits. The committee has done valuable work for the government in a difficult field. The work of the committee has become extremely onerous, more particularly since the range of pharmaceutical benefits was considerably widened a year or so ago. With a view to strengthening the committee, it is proposed to increase by two the representation of medical practitioners nominated by the Federal Council of the British Medical Association. The panel of names to be submitted by the association for this purpose is to be increased from six to ten." 72 In 1986 s 85(2) and s 101(4) were enacted in their present form. These amendments affected the form rather than the substance of the provisions. The scheme under which the Minister was empowered to make a declaration under s 85(2)(a) remained essentially unchanged. The major alteration brought about by the 1986 amendments was to increase the level of patient contributions for pharmaceutical benefits. 73 In 1987 there were a number of significant amendments to the Act. Section 101(2) was enacted in its present form and a new subs (2AA) was inserted. The combined effect of these provisions was to enable the Minister to appoint, as additional members of the PBAC, a pharmacologist and up to three medical practitioners, one of whom was to be a nominee of the Doctors' Reform Society. In addition, s 101A was inserted, enabling the PBAC to establish sub-committees to assist it in performing its functions. Very significantly, subss (3A), (3B) and (3C) were inserted into the Act. 74 The explanatory memorandum in relation to these amendments included the following passages at p4: "The Bill will also amend the National Health Act 1953 to tighten procedures followed in the process of listing new drugs as Pharmaceutical Benefits for the purposes of the Act. The Pharmaceutical Benefits Advisory Committee, which recommends to the Minister which drugs should be listed as Pharmaceutical Benefits, will be required, when deciding whether to recommend that a new drug be so listed, to take the relative cost-effectiveness of the drug when compared with other available drugs and therapies into account and to state if recommended drugs or medicinal preparations are more costly that it is satisfied there are advantages in their use for some patients. Such amendments are aimed at discouraging the prescription of expensive drugs where more cost-effective alternatives are available. …… The Bill will also provide for an increased membership of the Pharmaceutical Benefits Advisory committee by allowing the Minister to appoint up to three extra medical practitioners, and provide for the establishment of specialist sub-committees of the above Committee. Such amendments are broadly aimed at allowing the Committee to perform its functions in a more efficient and detailed manner." 75 The explanatory memorandum had this to say about the new subs 101(3A) at pp13-14: "Sub-section 101(3A) requires the Pharmaceutical Benefits Advisory Committee to consider the effectiveness and cost of therapy involving the use of any drug or medicinal preparation or class thereof when deciding whether to recommend to the Minister that that drug, preparation or class should be made available as a pharmaceutical benefit. The Committee, in considering effectiveness and cost must have regard not only to the use of therapies involving other drugs but also to therapies which do not necessarily involve the use of drugs at all." 76 In his second reading speech in relation to these amendments on 8 October 1987 the then Minister, Mr Humphries, expressed the Government's concern about the increasing cost of the Pharmaceutical Benefits Scheme over previous years. He proceeded to make the following observations: "This Bill includes amendments that will require the PBAC to take account of comparative effectiveness and cost in recommending drugs as pharmaceutical benefits and in considering any change to prescribing restrictions applying to pharmaceutical benefits. In the past the PBAC has not been required by its statutory charter to take costs into account when making its recommendations. In practice it has taken price into account when considering drugs of similar efficacy and toxicity, but only as a secondary consideration. The obligation to consider comparative effectiveness and cost will require the PBAC to give consideration to alternative forms of treatment, for example, surgery, in making recommendations. The Committee will not be allowed to recommend the listing of a particular drug which is substantially more costly, unless it is satisfied that, at least for some patients, the drug provides significant therapeutic advantages over alternative therapy. The Government has no objection to paying high prices for new drugs that offer significant therapeutic advances over existing drugs or other forms of treatment. But it does not believe the taxpayer should foot the bill for very expensive drugs that offer only minimal advantages over much cheaper alternatives. To assist the Committee to take account of these wider considerations, the Government intends to upgrade significantly secretariat support for the PBAC, with greater utilisation of specialist consultants to advise on selected areas of drug therapy. Together with the upgrading of the PBAC secretariat, the Minister will be empowered to increase membership of the Committee by up to three; all of the additional members must be medical practitioners. This enlarged membership, additional secretariat support and greater resources to engage consultants complement the provisions in the Bill for the PBAC to appoint sub-committees to provide the best available advice in this technical area." 77 The last relevant amendment was in 1998 when paragraph (d) was added to s 101(1) of the Act. The effect of this was to add a community representative as a member of the PBAC, so long as "the Minister is satisfied that the person has such qualifications or experience as would enable the person to contribute meaningfully to the deliberations of the Committee" (s 101(2AAA)). 78 Both Mr Robertson for Pfizer and Mr Downes for the PBAC rely on the legislative history of Part VII as supporting the construction of the legislation for which they contend. Mr Robertson says that it was clear from the outset that the PBAC's considerations were intended to be confined to medical matters. Nothing that has happened since has altered this, except for the requirement, pursuant to s 101(3A), that the PBAC consider the cost of therapy and compare this with the cost of alternative therapies or procedures. Mr Downes on the other hand says that there are many factors to indicate that the role of the PBAC has expanded well beyond that which might have been intended back in 1953. He refers to the second reading speech when the Minister introduced the 1987 amendments. In particular Mr Downes seeks to distinguish between the meaning of the words "price" and "cost" in this speech as showing that s 101(3A) was intended to require that the PBAC consider not only the price of individual therapy but also more general cost issues relating to the therapy. 79 I accept that the word "cost" will often be of broader application than the word "price". However to use this as a basis for extrapolating the proposition urged by Mr Downes is to attribute to the Minister very subtle nuances of meaning which may not have been intended. It could equally have been argued, against Mr Downes' proposition, that the Minister's reference to "this technical area", at the end of the comments quoted earlier, was a reference to the type of analysis which would be required in order to undertake a comparison of costs and benefits of individual units of therapy. It must also be remembered that each of the three additional members appointed to the PBAC under the 1987 amendments were to be medical practitioners. 80 In the result, the legislative history of Part VII does little to clarify the matters raised in this case. One needs to go elsewhere for this purpose. In this context it is instructive to consider the provisions of subss (3A), (3B) and (3C) of s 101, which were, as mentioned, introduced by the 1987 amendments. 81 Mr Downes urges, with considerable force, that in considering the matters required by s 101(3A), the PBAC will need to have regard to overall costs issues. It will be recalled that s 101(3A) requires the Committee to give consideration to the effectiveness and cost of therapy involving the use of the drug under consideration, including by comparing it with the effectiveness and cost of alternate therapies. As Mr Downes points out, the effectiveness of a drug cannot be assessed on a single unit basis. A particular drug might in some cases be entirely successful in treating the condition for which it is indicated. In those cases the drug is 100% effective. In other cases it might have no effect upon the patient's condition and thus be entirely ineffective. In many cases there will be shades of effectiveness between these extremes. In order to assess the overall effectiveness of a drug it is necessary to examine its efficacy over a broad range of people for whom it is medically indicated. This means that account must be taken of the overall effectiveness of a drug, together with its overall cost. A particular drug might be highly effective in relation to a small proportion of persons suffering the condition for which it is indicated. In this event the drug, although individually reasonably priced, might become extremely costly for each successfully treated patient. In this situation it is clearly relevant for the PBAC to consider, pursuant to s 101(3A), the overall cost of the drug in question, having regard to the benefits to be derived from it, and comparing this with the effectiveness and cost of alternative therapies. In other words, it is impossible to consider the effectiveness and cost of individual units of therapy without having regard to over-all costs issues. 82 Mr Downes's argument on this aspect of the matter is closely linked with his submissions on the "overuse" or "leakage" issue. There are some drugs which, for any number of reasons, are likely to be sought and used by members of the community other than those for whom the drug is medically indicated. Sildenafil is such a drug. I do not take Pfizer to be disputing this proposition. What it says is that this was not a relevant issue for consideration by the PBAC. But what should the PBAC do, given this situation? It has two choices. It can ignore the "overuse" issue, and assess the cost and effectiveness of sildenafil upon the assumption that it will be used only by those for whom it is medically indicated. Alternatively, it can make these assessments having regard to the total group of people by whom the drug is likely to be used. Pfizer says that the PBAC should have adopted the first approach. But the difficulty here is that the "overuse" or "leakage" issue impacts upon the medical effectiveness of the drug as well as its cost. The effectiveness of sildenafil is to be measured having regard to its success in treating the condition for which it is indicated, namely erectile dysfunction of neurogenic or vasculogenic origin. It follows that the drug is ineffective when used outside this group. It also follows that the proportion of users for whom sildenafil will be effective cannot be assessed without having regard to the extent to which it is likely to be overused. Similarly, the cost of each successful unit of treatment cannot be ascertained without assessing the proportion of successful users to unsuccessful users. In drugs that are vulnerable to overuse, "unsuccessful users" must include users outside the group for which the drug is indicated. 83 Mr Robertson says, as I understand it, that these factors (overall costs and the potential for misuse) might be necessary for the PBAC to consider in order to determine the true cost and effectiveness of individual units of therapy, but they can only be used for this purpose. The PBAC, having reached its assessment as to the effectiveness and cost of the individual therapy, and having compared it with the effectiveness and cost of alternative therapies, makes its recommendation to the Minister only on the basis of that assessment and that comparison. 84 Mr Robertson's approach, if adopted, would lead to a very inefficient allocation of responsibilities between the PBAC and the Minister. The PBAC, having taken overall costs into account in determining the effectiveness and cost of individual therapy, would then have to treat this issue as irrelevant to the making of a recommendation under s 101(3). The Minister would then have to separately consider this issue in determining whether to make a declaration under s 85(2)(a). In many cases the fact that roles are duplicated or that inefficiency might occur may not be a particularly material consideration. However here the issue is whether an apparently unconfined discretion is to be taken to be limited by the context, scope or purpose of the empowering legislation. If the purposes of the legislation are more efficiently served by the discretion being exercised in an unconfined manner, then this must be a relevant consideration. 85 Also relevant here is s 101(3C), which was quoted in paragraph 12 of this judgment. This provision needs to be read in conjunction with s 85(2A) and s 88A which are as follows: "85 Pharmaceutical benefits (2A) The Minister may, in a declaration under subsection (2): (a) declare that a particular pharmaceutical benefit is to be a relevant pharmaceutical benefit for the purposes of section 88A; and (b) specify the circumstances in which a prescription of the supply of the pharmaceutical benefit may be written. …… 88A Prescription of certain pharmaceutical benefits authorised only in certain circumstances Where a pharmaceutical benefit is declared, in a declaration made under subsection 85(2), to be a relelvant pharmaceutical benefit for the purposes of this section, the writing of a prescription for the supply of the benefit is authorised under this Part only in circumstances specified in the declaration pursuant to subsection 85(2A)." 86 Pfizer sought to invoke these provisions in its re-submission to the PBAC in March 1999. The submission suggested that the number of prescriptions for sildenafil to be authorised in any six month period be limited to five. This was designed to meet the PBAC's concerns as to the potential overuse or misuse of sildenafil. If this issue - the "leakage" issue - is a relevant issue for the PBAC to consider when determining whether to make a specification under s 101(3C), then it must also be relevant in determining whether to make a recommendation under s 101(3). 87 The strongest argument in favour of the proposition that a limitation is to be implied from the legislative context derives, in my opinion, from the fact that the Minister does not come to consider the issues involved in making a declaration under s 85(2)(a) unless the PBAC has already made a positive recommendation under s 101(3). But there are other aspects of the legislative context which point in the opposite direction. The plain wording of the relevant sections fall into this category. Section 101(3) is, as already noted, unconfined in its terms: the Committee is to make recommendations to the Minister as to the drugs or medicinal preparations which it considers should be made available as pharmaceutical benefits. Under s 101(4) the Minister is precluded from declaring a drug or medicinal preparation to be a pharmaceutical benefit under s 85(2)(a) unless "the Committee has recommended to the Minister that it be so declared".(emphasis added) 88 To "recommend" is to "present a course of action as desirable or advisable" (New Shorter Oxford Dictionary). The "course of action" in this case is the making of a declaration under s 85(2)(a). And it is difficult to see how the PBAC can recommend that this course be adopted without first having regard to all relevant considerations, whether they be medical, financial or otherwise. 89 There may be any number of non-medical considerations which will come to the PBAC's notice during the course of its legitimate enquiries. If Mr Robertson's submission were correct, the PBAC would be obliged to ignore these considerations. But what if these included such substantial adverse considerations as to offset any medical advantage of including the drug in the PBS? It would be absurd to suggest that the PBAC should nevertheless make a positive recommendation under s 101(3) in relation to that drug. It must be remembered that, apart from s 101(3C), the PBAC has no power to place qualifications upon its recommendations. In other words, there is no provision for the PBAC to say, in effect, "we consider that drug x is a very effective drug in treating condition y, and that medical considerations favour its being declared a pharmaceutical benefit under s 85(2)(a). However, we must advise you of the following countervailing considerations ….". 90 The difference is between an advisory body and a recommendatory one. Restrictions upon the former are commonplace and workable. But it is difficult to see how the considerations of a body whose functions are to make recommendations which are, on their face, unqualified, can be restricted to some only of the matters which are relevant to the ultimate decision. 91 One final matter merits consideration under this head, namely the constitution of the PBAC itself. Mr Robertson relies upon the fact that, until recently, all members of the PBAC were medical, pharmaceutical or pharmacological experts. But the fact is that the most recently added member is a community representative. One might ask what function this member would serve if the Committee's considerations were to be confined to medical matters. Moreover, the PBAC has, since 1987, had power to appoint sub-committees to assist it in performing its functions. As Mr Robertson rightly points out, an organisation cannot enlarge its powers by appointing sub-committees to deal with matters which are beyond its own powers. But the fact that the PBAC can, through its sub-committees, obtain assistance from people with a broad range of expertise and experience, reduces the force of any argument that the Committee's considerations must be limited by the expertise of its members. 92 It follows that the PBAC did not err in taking into consideration the total cost to the Commonwealth of including sildenafil on the PBS, or the potential for misuse or "leakage" as a result of sildenafil being prescribed in circumstances where its use was not clinically necessary. 93 Pfizer submits that the PBAC's decision was tainted by its taking into account other "political" considerations which should not have been relevant to its inquiry. These are: · that sildenafil can be categorised as a "lifestyle" drug; · that the condition for which sildenafil is indicated is not a life-threatening one; and · that any decision to declare sildenafil under the PBS would need to be defended in Parliament 94 I am unable to find a description of sildenafil as a lifestyle drug. No doubt this reference is to be found somewhere in the extensive papers which were made available to PBAC members for the June 1999 meeting. There was certainly a reference to the fact that the condition to be treated by sildenafil is not life-threatening. The minutes of the June 1999 meeting, under the heading "Background", set out the reasons for the PBAC's previous rejection of Pfizer's submission, in December 1998, in terms which included the following statement: "The Committee did not accept the claim that sildenafil is more effective than alprostadil and was concerned at the high predicted cost to the PBS, even it a Special Patient Contribution was applied (as suggested by the sponsor), particularly considering that the condition to be treated is not life-threatening." 95 There is no suggestion that either of these considerations, namely that sildenafil is a lifestyle drug, or that the condition that it treats is not life-threatening, constituted a ground upon which the PBAC rejected Pfizer's re-submission in June 1999. In any event, they were clearly relevant matters. Any consideration as to whether a drug should be declared a pharmaceutical benefit must have regard to the type of condition for which it is indicated. It goes without saying that funds will more readily be directed towards subsidising drugs which treat serious, debilitating or life-threatening conditions over those which treat minor conditions only. 96 The third matter which Pfizer says the PBAC wrongly took into account was that if sildenafil were declared a pharmaceutical benefit, its price would need to be defended in Parliament. 97 This issue is mentioned twice in the material relating to the June 1999 meeting. Amongst the agenda papers for that meeting was a copy of a letter dated 19 February 1999 from Mr Threlfall to Andrew Mitchell, describing a meeting the previous week between Mr Threlfall and representatives of Pfizer. The letter listed a number of matters which Mr Threlfall said he had told Pfizer's representatives would need to be addressed in their re-submission. These included the following matters: "5. The concerns at the overall cost to the PBS. I indicated that both the PBAC and the Government (due to the likely cost the approval would need to come from 'Cabinet') would have problem with a drug for this indication to cost $100 million or so. 6. The Co again persisted with the idea (as raised in the pre-PBAC comments) of a patient part charge along the lines of a 'special pharmaceutical benefit'. I raised two major problems with this, and there[sic] were that the major use of the special pharmaceutical benefit provisions related to situations where the Gov and Co disagreed over the margins on cost of goods. This was not the case here. The second problem was what would be the Governments price? In effect the Gov would need to set a price that it thought reasonable for a patient to be able to have sexual intercourse. I did not think the Gov would see this as a reasonable scenario, particularly at[sic] the figure would need to be defeneded[sic] in Parliament." 98 This communication was referred to in the minutes of the June 1999 meeting under the heading "Background", in the following terms: "7.2.3 With regard to the Special Patient Contribution proposal, in between- meeting discussions with the Secretary to the PBAC, the company was advised that the major use of special pharmaceutical benefit provisions relate to situations where the Government and the company disagree over the margins on cost of goods and this is not the case with sildenafil. In addition, the price set by the Government would need to reflect what the Government considers reasonable for a patient to have sexual intercourse. The company was advised that this would be difficult for the Government as the figure would need to be defended in Parliament." 99 Neither the minutes nor the s 13 Statement contain any further reference to this matter. It does not appear to have been mentioned in the Committee's discussion which led to the rejection of Pfizer's re-submission. 100 This consideration, namely that the price of sildenafil would need to be justified in Parliament if a declaration were to be made under s 85(2), was, as Mr Robertson submits, essentially a political one. As such, it was more appropriately a matter for the Minister to consider. But it does not necessarily follow that it was outside the purview of relevant considerations for the PBAC. More importantly, there is nothing to indicate that this matter was taken into account by the PBAC when it reached its decision to reject Pfizer's submission. The matter had been the subject of discussion between Mr Threlfall and representatives of Pfizer, as the material before the Committee made clear. But there was no reference to it, either in the minutes or in the s 13 statement, as having played any part in the Committee's deliberations. The decision to reject Pfizer's submission appears from those documents to have been based on entirely different considerations. It therefore cannot be said that this consideration was taken into account by the PBAC as an element leading to the formation of its decision. 101 It follows from all I have that the first ground of review urged by Pfizer, namely that the PBAC took irrelevant considerations into account, has not been made out.

Did the PBAC fail to take relevant considerations into account? 102 It is Pfizer's submission that the PBAC, in declining to recommend that sildenafil be included in the PBS, failed to take into account the following relevant considerations: · it failed to take into account the cost and/or the effectiveness of sildenafil as a unit of therapy, as required by s 101(3A); and · it failed to consider recommending, pursuant to s 101(3C), that the Minister impose special conditions as to the circumstances in which prescriptions for sildenafil may be written. 103 As to the first of these matters, Pfizer points out that s 101(3A) requires the PBAC to give consideration to the effectiveness and cost of therapy involving the use of the drug, and to compare this with the effectiveness and cost of alternate therapies. This, Pfizer says, the PBAC failed to do in the case of sildenafil. Not only did it fail to consider the effectiveness or cost of sildenafil, but it failed to make any comparison, as required, with the effectiveness and cost of alprostadil, being the alternative therapy. Under this ground it is also submitted that the PBAC misdirected itself as to the operation of s 103(3A) by taking the approach that it was necessary for Pfizer to prove that sildenafil was as effective as alprostadil before a recommendation could be made under s 101(3). Section 101(3A), it is urged, imposes no such requirement. 104 It is not disputed, nor could it be, that the PBAC is bound, under s 101(3A), to consider the effectiveness and cost of any drug which is being considered for recommendation under s 101(3) and to compare this with the effectiveness and cost of alternative therapies. In this case the PBAC says that it did consider these matters to the extent that the material provided by Pfizer enabled it to do so. It sought to make a meaningful comparison between the two therapies but was hampered by the inadequacy of the information available to it. Moreover this fact was made known to Pfizer very early in the piece. The limitations in the data provided by Pfizer was the subject of considerable discussion between the PBAC and its sub-committees, and between the PBAC and Pfizer. Pfizer was alerted, well before December 1998, that the Pharmaceutical Evaluation Section was unable to compare the relative effectiveness of sildenafil and alprostadil because of the inadequacy of the data contained in Pfizer's submission. These concerns of the PBAC's were not adequately addressed before its meeting in December 1998. The information contained in Pfizer's re-submission in March 1999 was still inadequate, according to the Pharmaceutical Evaluation Section, to enable a proper comparison to be made of the cost and effectiveness of the two therapies. Nevertheless, an attempt was made by the PBAC, or by its sub-committees, to consider the effectiveness and cost of sildenafil, and to compare it with alprostadil. In the minutes of the June 1999 meeting under the heading "Summary of Submission" the following passages appear: "7.2.7 The re-submission presented a preliminary economic evaluation and no modelled evaluation. Two comparators were used: placebo to account for the currently untreated male population which may differ from those who are prepared to use intracavernosal therapy; and alprostadil injections. Alprostadil was considered the appropriate comparator by the PES evaluator. 7.2.8 The sponsor stated that in revisiting the body of literature presented for the original submission, evidence emerged describing a baseline level of sexual activity amongst men treated with intracavernosal injections, allowing a more accurate comparison of the efficacy between sildenafil and alprostadil injections. These references included Althof et al 1991 and Turner et al 1992. The baseline sexual function across all groups of men using intracavernosal injection therapies ranged between 27% and 31%. However, the PES evaluator noted that baseline sexual activity was not the same as the placebo response measured in the trials because the outcomes used to define each were different, and therefore questioned the validity of adjusting the results for alprostadil. 7.2.9 The primary outcome measure for sildenafil was the proportion of attempts at sexual intercourse that were successful and the results were expressed as the response rate for the proportion of males achieving sexual intercourse. For alprostadil, the outcome used was the number of men with any successful attempt at intercourse. The proportion of men achieving sexual intercourse was between 54-69% with sildenafil and 28-55% with alprostadil. Adjusting for baseline/placebo response rates using the average baseline/placebo response rate of 20% from the sildenafil trials, sildenafil showed an efficacy of 30-39% compared with up to 35.5% with alprostadil. In its pre-PBAC comment, Pfizer stated that in many cases, the number of men reporting at least one successful attempt at intercourse was identical to the proportion of successful attempts. The PES report indicated that although the re-submission had attempted to use a more patient-relevant outcome in comparing sildenafil with alprostadil, it was hampered by the lack of appropriate data and that it was difficult to compare the clinical performance of the two drugs in the absence of a head-to-head trial. Therefore, the ESC maintained that the clinical impression of sildenafil, as concluded previously, remained unchanged. 7.2.10 The preliminary economic evaluation used percent of treatments resulting in satisfactory sexual activity. The sponsor emphasized that this outcome does not incorporate the additional costs of initiation and ongoing treatment with alprostadil such as the management of adverse events, multiple visits for training and administration of first dose in the doctor's rooms. The company noted that the number of males continuing to obtain benefit from treatment over 12 months was also a valid measure and was likely to be the most patient relevant outcome. The incremental cost per additional unit of success for sildenafil was between $41-$55. The baseline adjusted incremental cost per unit of success with alprostadil was estimated at between $44 and $196 adjusting for 20% baseline activity and between $63 and $224 adjusting for 30% baseline activity. The incremental cost using the unadjusted rates ranged from $28-$56. 7.2.11 Despite the inherent difficulties listed in the submission in comparing both drugs, Pfizer claimed that sildenafil is at least as effective as alprostadil (and significantly more effective than placebo); is more acceptable to patients; and has fewer adverse effects. In addition, in real life settings, it was more likely that patients with erectile dysfunction would continue to use sildenafil to enable them to achieve a longer term outcome of near normal sexual function." 105 Finally, under the heading 'Discussion', the following passage appears: "7.2.14 Members noted that there was no new clinical evidence but new calculations were included in the resubmission along with new proposals to limit use. Using a new outcome measure, the resubmission claimed sildenafil is as effective as alprostadil. However, in the absence of any head-to-head trial comparing sildenafil tablets with alprostadil injections and the use of different outcome measures in the trials comparing the individual drugs with placebo, the Committee did not consider that there was sufficient evidence to establish that sildenafil tablets were as effective as alprostdil injections." 106 Pfizer suggests that the PBAC was misdirecting itself in this last passage, by unnecessarily and unfairly imposing a burden on Pfizer to show that sildenafil was more effective than alprostadil. However I do not read this passage as carrying that meaning. The Committee was endeavouring to do precisely what Pfizer says it was bound to do, namely to compare the effectiveness of the two therapies. However given the inadequacy of the material available to it, the Committee was unable to conclude that sildenafil was as effective as alprostadil. There was no requirement inherent in this finding that Pfizer had to prove that sidenafil was as effective as alprostadil. I take the PBAC, in this passage, to have been doing no more than comment on the inadequacy of the evidence submitted to it. 107 The extracts quoted above show that the PBAC did consider the matters required by s 101(3A), to the extent that the available material enable it to do so. In my view this head of complaint has not been made out. 108 The second matter raised under this general head is that the PBAC wrongly failed "to give any real consideration" to the possibility of qualifying its recommendation under s 101(3C). It will be recalled that this provision enables the PBAC to qualify a recommendation under s101(3) by specifying the particular circumstances in which prescriptions for sildenafil might be authorised under the PBS. The Minister might then exercise his power under s 85(2A) to specify the circumstances in which a prescription may be written. 109 There are two answers to this criticism. The first is that the PBAC was under no obligation to consider qualifying its recommendation as envisaged by s 101(3C). The second is that it did, in any event, give this matter consideration but decided that it would be futile to do so. 110 In Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 Mason J discussed the principles to be applied when considering whether an administrative decision-maker has failed to take a relevant consideration into account. The decided cases, his Honour said at pp39-41, had established the following propositions: "(a) The ground of failure to take into account a relevant consideration can only be made out if a decision-maker fails to take into account a consideration which he is bound to take into account in making that decision: Sean Investments Pty Ltd v MacKellar; CREEDNZ Inc v Governor-General; Ashby v Minister of Immigration. The statement of Lord Green MR in Associated Provincial Picture Houses Ltd v Wednesbury Corporation,that a decision-maker must take into account those matter which he "ought to have regard to" should not be understood in any different sense in view of his Lordship's statement on the following page that a person entrusted with a discretion "must call his own attention to the matters which he is bound to consider". (b) What factors a decision-maker is bound to consider in making the decision is determined by construction of the statute conferring the discretion. If the statute expressly states the considerations to be taken into account, it will often be necessary for the court to decide whether those enumerated factors are exhaustive or merely inclusive. If the relevant factors - and in this context I use this expression to refer to the factors which the decision-maker is bound to consider - are not expressly stated, they must be determined by implication from the subject-matter, scope and purpose of the Act. In the context of judicial review on the ground of taking into account irrelevant considerations, this Court has held that, where a statute confers a discretion which in its terms is unconfined, the factors that may be taken into account in the exercise of the discretion are similarly unconfined, except in so far as there may be found in the subject-matter, scope and purpose of the statute some implied limitation on the factors to which the decision-maker may legitimately have regard: see Reg v Australian Broadcasting Tribunal; Ex parte 2HD Pty Ltd adopting the earlier formulations of Dixon J inSwan Hill Corporation v Bradbury, and Water Conservation and Irrigation Commission (NSW) v Browning. By analogy, where the ground of review is that a relevant consideration has not been taken into account and the discretion is unconfined by the terms of the statute, the court will not find that the decision-maker is bound to take a particular matter into account unless an implication that he is bound to do so is to be found in the subject-matter, scope and purpose of the Act. (c) Not every consideration that a decision-maker is bound to take into account but fails to take into account will justify the court setting aside the impugned decision and ordering that the discretion be re-exercised according to law. A factor might be so insignificant that the failure to take it into account could not have materially affected the decision: see, eg, the various expressions in Baldwin & Francis Ltd v Patents Appeal Tribunal; Hanks v Minister of Housing and Local Government; Reg v Chief Registrar of Friendly Societies; Ex parte New Cross Building Society. A similar principle has been enunciated in cases where regard has been had to irrelevant considerations in the making of an administrative decision: Reg v Bishop of London; Reg v Rochdale Metropolitan Borough Council; Ex parte Cromer Ring Mill Ltd. (d) The limited role of a court reviewing the exercise of an administrative discretion must constantly be borne in mind. It is not the function of the court to substitute its own decision for that of the administrator by exercising a discretion which the legislature has vested in the administrator. Its role is to set limits on the exercise of that discretion, and a decision made within those boundaries cannot be impugned: Wednesbury Corporation." (footnotes omitted) 111 Section 101(3A), by its terms, requires the PBAC to give consideration to the effectiveness and cost of any drug which is under consideration, and to compare it with the effectiveness and cost of alternative therapies. No such requirement is to be found within the terms of s 101(3C). To the contrary, the section is only enlivened once the PBAC has formed the opinion that a drug or medicinal preparation should be made available as a pharmaceutical benefit. In practice, the Committee will no doubt consider issues raised under subss 101(3), (3A) and (3C) (and, if appropriate, (3B)) at the same time. That is what it did in the present case. But there is nothing in the terms of s 101(3C) which requires the Committee to consider making a specification under that sub-section. Nor, to use Mason J's words, is any implication that it is bound to do so to be found in the subject matter, scope or purpose of the Act. 112 I return to the circumstances of the present case. Pfizer's re-submission to the PBAC, made in March 1999, suggested that the cost of including sildenafil on the PBS could be reduced by adopting a number of measures. One of these was to restrict the number of prescriptions to be authorised under s 88A in any six months period. This directly raised the question of whether a declaration by the Minister under s 85(2)(a) should be qualified as provided by s 85(2A); and whether the PBAC should recommend that course, as it was entitled to do under s 101(3C). The PBAC considered this matter, as did its sub-committees. As part of the pre-PBAC process, Pfizer was asked to comment upon whether the measures it had proposed in its re-submission would be sufficient to ensure that the use of sildenafil would be cost effective. Pfizer sought to address this issue, but failed to do so to the satisfaction of the Committee. The discussion set out in the minutes of the meeting on 3 and 4 June 1999 make it clear that this matter was discussed, but the Committee was not satisfied that the measures suggested by Pfizer would be workable or effective. In other words, the PBAC did not fail to consider this matter. It discussed it directly, but ultimately resolved it against Pfizer. 113 Accordingly I can find no substance in this head of claim.

Did the PBAC apply the rules of natural justice? 114 Pfizer claims that the PBAC breached the rules of natural justice in three respects. First, the Committee took into account items of information in circumstances where Pfizer had not been notified of the Committee's intention to do so and was not given an opportunity to respond. Secondly, it is said that the PBAC took into account expert evidence provided by Committee members. Pfizer was not informed of the intention of Committee members to give evidence and was given no opportunity to be heard in relation to that evidence. Thirdly, Pfizer complains that the PBAC unfairly took into account, as a reason for not making a recommendation, the absence of a head-to-head trial between sildenafil and alprostadil. This was unfair to Pfizer because the Guidelines, previously released by the PBAC, stated that there was no requirement for head-to-head randomised trials and that other forms of evidence would be given full consideration. 115 The first ground of complaint under this head is that the PBAC took into account certain items of information which were not known to Pfizer and which it was therefore unable to address in its submission. Those items were: · statistics supplied by the Health Insurance Commission on PBS prescriptions and costs; · evidence that prescriptions for alprostadil had been more than twice the level predicted by alprostadil's manufacturer; and · representations contained in a letter from the Urological Society of Australasia dated 1 December 1998. 116 The first two matters essentially go together. The Health Insurance Commission statistics, referred to under the first head, give details of the number and cost of prescriptions for alprostadil during the previous 12 months, and the total cost of alprostadil to the PBS during this period. The material complained of under the second head also relates to the number of prescriptions for alprostadil, and in particular to the fact that the overall usage and cost of alprostadil during its first year under the PBS was more than double that which had been predicted by its manufacturer in its original submission to the PBAC. 117 There is little doubt that both these matters were taken into account by the PBAC when it rejected Pfizer's re-submission in June 1999. Although there was no reference to them in the minutes, the s 13 statement contains the following references. First, under the heading "Evidence on which the Committee based its findings" the following passage appears: "Statistics routinely supplied from the Health Insurance Commission on PBS prescriptions and costs and in particular those relating to the supply of alprostadil injections under the PBS." 118 Under the heading "Relevant findings on material questions of fact" the following observation is made: "Prescriptions for subsidy of alprostadil injections under the PBS have been at more than twice the level predicted by the manufacturer of alprostadil injections at the time of application, with the costs to the PBS for the twelve months to the end of February 1999 being $8,836,772." 119 Finally, under the heading "Reasons for the decision" the following passage appears: "The submission under consideration did not demonstrate that the actual cost to the PBS could be confined by practicable and acceptable measures to between $10 million and $19 million as claimed by the sponsor, particularly in view of the history of use of alprostadil injections under the PBS and the current use of sildenafil tablets in the private prescription market." 120 There was no reference to either of these matters in any of the material sent by the PBAC to Pfizer. In earlier exchanges, which preceded the December 1998 meeting, any reference to these subjects in documents sent to Pfizer were deliberately blanked out or inked over. Nathan Bentley, Pfizer's Product Manager, swore an affidavit in these proceedings saying that he was not aware of this material, nor had he or anyone else at Pfizer been told that the PBAC intended to take it into account. It follows, Mr Robertson submits, that the PBAC was in breach of its obligation to disclose material on which it proposed to rely in reaching its decision. 121 The Health Insurance Commission's statistics showed that alprostadil had cost the PBS approximately $9 million over a twelve month period. Mr Downes cross-examined Mr Bentley to the effect that this figure was already known to him and to other representatives of Pfizer, as it had formed the basis of one of the financial estimates in Pfizer's original submission. Mr Bentley conceded that, to use his words, "we had a fair idea how much Caverject would cost". However he said "[W]e didn't know that our submission was being evaluated on the cost of Caverject" or, as he said a little later, "we hadn't realised it was going to be used as a criteria to assess our submission." 122 Mr Downes pointed out that a manufacturer's predictions of likely drug usage, as contained in its submission to the PBAC, is confidential material which the Committee is not at liberty to release, particularly to a competitor. In this regard he relied on the observations of Lockhart J in Ansett Transport Industries Ltd v Minister for Aviation (1987) 72 ALR 469 at p498: "If the Minister intended to make an estimate or determination with reference to some material affecting one of the airlines concerned on the basis of information obtained from another source, procedural fairness required in this case that an opportunity of responding to the matter be given to the airline affected. There is, however, a qualification to this requirement. If the information so obtained by the Minister came from a competitor of the airline affected by it and is confidential then that confidentiality must be preserved and the information must not be disclosed. The preservation of the confidentiality of commercially sensitive material is essential to the efficient and proper working of the estimate and capacity determination processes under the Equipment Act which must prevail over any conflicting right of an airline to be given the competitor's confidential information. No comprehensive rule can be stated because it may be possible, in some cases, for the Minister to inform an airline of the gist of the information supplied by another without revealing confidential material while enabling that airline to sufficiently comprehend and respond to the matter." 123 I am prepared to accept that the estimates of the likely usage of alprostadil, as contained in the manufacturer's submission to the PBAC, was confidential material which the PBAC was not at liberty to release to Pfizer. But it was the substance of the statement, namely that the actual usage of alprostadil was more than double the amount predicted, which was used by the Committee as a basis for its concern that the same thing might happen to sildenafil if it were included in the PBS. There was nothing confidential about this information. Indeed it was openly communicated to Pfizer in the s 13 statement. Pfizer's complaint was that this was the first time it was told about this matter, or about the fact that it was to be taken into account by the PBAC in rejecting Pfizer's submission. 124 Mr Downes conceded that Pfizer was not informed of this matter before the PBAC reached its decision in June 1999. However he urged that this was merely a facet of the "leakage" issue. The PBAC's concerns about this issue were very clearly communicated to Pfizer. Indeed Pfizer was told, throughout its dealings with the PBAC, that one of the latter's major concerns related to the potential for overuse of sildenafil, with a consequent drainage on the resources of the PBS. Mr Downes urged that the PBAC's obligation extended no further than to inform Pfizer of the issues which needed to be addressed. The detailed facts surrounding those issues did not need to be disclosed. 125 Mr Downes referred to the judgments of Mason and Brennan JJ in Kioa v West [1985] 159 CLR 550 ("Kioa"). In particular, Mason J at p587 referred to "the importance which the law attaches to the need to bring to a person's attention the critical issue or factor on which the administrative decision is likely to turn so that he may have an opportunity of dealing with it". Later in his judgment his Honour referred to the flexible content of the principles of natural justice. At pp 612-613 he made the following observations: "The principles of natural justice have a flexible quality which, chameleon like, evokes a different response from the repository of a statutory power according to the circumstances in which the repository is to exercise the power. The variable content of the principles of natural justice was articulated by Tucker LJ in an oft-cited passage in his judgment in Russell v Duke of Norfolk: 'The requirements of natural justice must depend on the circumstances of the case, the nature of the inquiry, the rules under which the tribunal is acting, the subject-matter that is being dealt with, and so forth. Accordingly, I do not derive much assistance from the definitions of natural justice which have been from time to time used, but, whatever standard is adopted, one essential is that the person concerned should have a reasonable opportunity of presenting his case.' In the Privy Council that passage was cited with approval in University of Ceylon v Fernando and again in Furnell v Whangarei High Schools Board where Lord Morris of Borth-y-Gest said: 'Natural justice is but fairness writ large and juridically. It has been described as "fair play in action".' The same view was adopted in the House of Lords: Wiseman v Borneman. In this Court the flexibility of the principles of natural justice was recognized by Kitto J in Mobil Oil Australia Pty Ltd v Federal Commissioner of Taxation: 'What the law requires in the discharge of a quasi-judicial function is judicial fairness. That is not a label for any fixed body of rules. What is fair in a given situation depends upon the circumstances. And it is not a one-sided business.' In Reg v Commonwealth Conciliation and Arbitration Commission; Ex parte Angliss Group, the joint judgment of all members of this Court cited with approval passages I have cited from the judgments of Tucker LJ and Kitto J. Their Honours said: 'It is plain that when it is necessary to consider a question of fairness in relation to a tribunal the whole of the circumstances in the field of the inquiry are of importance. The nature of the jurisdiction exercised and the statutory provisions governing its exercise are amongst those circumstances.'" (footnotes omitted) 126 In the same case at pp628-629, Brennan J made the following observations: "A person whose interests are likely to be affected by an exercise of power must be given an opportunity to deal with relevant matters adverse to his interests which the repository of the power proposes to take into account in deciding upon its exercise: Kanda v Government of Malaya; Ridge v Baldwin per Lord Morris; De Verteuil v Knaggs. The person whose interests are likely to be affected does not have to be given an opportunity to comment on every adverse piece of information, irrespective of its credibility, relevance or significance. Administrative decision-making is not to be clogged by inquiries into allegations to which the repository of the power would not give credence, or which are not relevant to his decision or which are of little significance to the decision which is to be made. Administrative decisions are not necessarily to be held invalid because the procedures of adversary litigation are not fully observed. As Lord Diplock observed in Bushell v Environment Secretary: 'To "over-judicialise" the inquiry by insisting on observance of the procedures of a court of justice which professional lawyers alone are competent to operate effectively in the interests of their clients would not be fair.' Nevertheless in the ordinary case where no problem of confidentiality arises an opportunity should be given to deal with adverse information that is credible, relevant and significant to the decision to be made." (footnotes omitted) 127 These principles have been adopted in numerous subsequent cases. In Telstra Corporation Ltd v Kendall (1995) 55 FCR 221 at 230 the Full Federal Court made the following observation at 230: "The parties were not at issue on the relevant legal principles. It was agreed that the present was not a case where the common law doctrine of natural justice was excluded so that, to paraphrase the language of Mason J in Kioa v West (1985) 159 CLR 550 at 582, Mr Kendall was entitled to know the case sought to be made against him and to be given an opportunity of replying to it. As Mason J pointed out in the same decision (at 584-585): 'What is appropriate in terms of natural justice depends on the circumstances of the case and they will include, inter alia, the nature of the inquiry, the subject matter, and the rules under which the decision-maker is acting.' Put in another way, the content of the obligation to afford procedural fairness must depend upon all of the circumstances of the case. It is clear that procedural fairness does not necessarily require a decision-maker to bring to the attention of a person affected the precise detail of all matters upon which he or she proposes to rely: McVeigh v Willarra Pty Ltd (1984) 6 FCR 587 at 600-601. However, as Kioa v West itself indicates, a general and unfocused invitation to make submissions will be inadequate." 128 The real question is where this leads us in the present case. Mr Robertson says that the fact that alprostadil usage and cost was double the amount predicted was, to use the words of Brennan J in Kioa, "credible, relevant and significant" to the decision to be made by the PBAC. Mr Downes, as indicated, urges that it was merely a historical facet of the PBAC's concern about the "leakage" issue, a concern which was fully communicated to Pfizer. 129 The fundamental consideration under this head is whether the procedures adopted by the PBAC on this occasion were fair and appropriate, having regard to the circumstances of the case. On balance, I think they were. The potential for overuse of sildenafil was noted as a matter of concern during the pre-PBAC consultations back in November 1998. One of the grounds for rejecting Pfizer's original submission, as communicated to Pfizer, was that Pfizer's estimate of the cost of listing sildenafil on the PBS was likely to be "a considerable underestimate given the usage of alprostadil" (emphasis added). Before Pfizer lodged its re-submission, in March 1999, its officers were told by Mr Threlfall that one of the PBS's primary concerns relating to the listing of sildenafil was the possibility of "leakage" outside the target population, with the corresponding cost consequences. Similarly, the Pharmaceutical Evaluation Section's report on Pfizer's re-submission emphasised two matters, namely the lack of clinical data which enabled a direct comparison to be drawn between sildenafil and alprostadil, and the potential for overuse of sildenafil, leading to a cost blow-out were it to be included in the PBS. 130 The fact that the usage and cost of alprostadil was double the manufacturer's prediction was, to use Brennan J's words in Kioa, credible and relevant. But it was not adverse in the same sense as the information which was withheld in Kioa. In that case Mr Kioa was not given access to a departmental submission which was placed before the Minister's delegate when he ordered Mr Kioa's deportation. The submission contained damaging comments about Mr Kioa's activities, which implied that he was evading detection and that he was actively involved with "other Tongan illegal immigrants". The High Court, by majority, held that fairness demanded that Mr Kioa should have had the opportunity of replying to these allegations. The information in the present case is quite different. It is, in effect, historical information on a matter which bore no relation to any activity of Pfizer. It is difficult to see how Pfizer could have responded to this information. Mr Robertson points out that it is no answer, when a breach of the rules of natural justice has occurred, to say that the outcome would have been the same in any event. But the issue here is whether there has been such a breach in the first place. And if the withheld information is such that the person affected by a decision could not be expected to comment meaningfully upon it, this will be relevant to the overall question of fairness. 131 In my view the dictates of fairness were adequately met in this case. The information which was withheld from Pfizer was incidental to the PBAC's concern about the possible overuse of sildenafil. It was this issue which needed to be addressed, not the historical fact of alprostadil's overuse. Pfizer was given every opportunity to address the issue of overuse. The fact that there was a link between this issue and the use of alprostadil was, in any event, generally conveyed to Pfizer in December 1999, when Pfizer was informed that the PBAC regarded its estimate of the usage of sildenafil to be "a considerable underestimate given the usage of alprostadil". 132 The third piece of information of which Pfizer says it should have been notified was a letter to the PBAC from the Urological Society of Australasia dated 1 December 1998, which Pfizer did not see until after June 1999. This letter was in response to a letter from Mr Threlfall to Professor Millard of the Urological Society, dated 21 September 1998. Mr Threlfall's letter expressed concern about the cost of alprostadil to the PBS and the projected cost of sildenafil were it to be included in the PBS. He sought advice from the Urological Society about the possibility of devising a more limited indication for alprostadil, which might target the drug to the most deserving patients. The Urological Society's response dated 1 December 1998 indicated that the "Executive of the Urological Society of Australasia do not presently support PBS listing for Sildenafil". The letter went on to express concern about the possible cost to the PBS should sildenafil be included in the Scheme. 133 The problem with Pfizer's complaint in relation to this letter is that the letter was not before the PBAC at either of the meetings at which it considered Pfizer's application in relation to sildenafil. Mr Threlfall's letter of the 21 September had sought a response by the end of October so that it could be included in the papers for the PBAC's December meeting. However the letter was much too late to be included amongst those papers. It was included in the agenda papers for a PBAC meeting in March 1999, when the Committee discussed the possibility of tightening the indication for the use of alprostadil. However it was not included in the agenda papers for the June meeting, when the PBAC considered and rejected Pfizer's re-submission. Accordingly, there is no suggestion that it was taken into account as a relevant matter by the PBAC or that Pfizer should have been alerted to its contents. 134 The second basis upon which Pfizer claims that the PBAC breached the rules of natural justice is that it took into account "expert evidence" provided by members of the Committee in relation to their experience with the operations of the PBS and with the practice of medicine and pharmacy. Pfizer's submissions say that it was not notified by the Committee of the intention of members to give evidence, and was given no opportunity to be heard in relation to that expert evidence. 135 Pfizer's concern on this issue arose out of the s 13 statement provided by the PBAC. Under the heading "Evidence on which the Committee based its findings" was the following passage: "2.5 Expert evidence provided by Committee members in relation to their experience with the operations of the PBS and with the practice of medicine and pharmacy". 136 On 10 August 1999 Pfizer's solicitors wrote to the PBAC asking for details of, amongst other matters, the expert evidence referred to in para 2.5 of the s 13 statement. On 23 August 1999 Mr Threlfall responded on behalf of the PBAC. As relevant to this point he said: "The expert evidence provided by the Committee members relates to the accumulated understanding and knowledge of the actions of drugs, understanding of clinical trial evaluations and economic analyses and of the functions and operation of the Pharmaceutical Benefits Scheme. The length of membership of PBAC members ranges up to 26 years. The PBAC has been requiring the presentation of clinical effectiveness and cost effectiveness data in support of applications for PBS subsidy for some years. Members have thus gained considerable expertise and experience in the consideration of such applications. Likewise their understanding of the operations of the Pharmaceutical Benefits Scheme have resulted from consideration of PBAC agenda items and from knowledge gained from their professions of medicine and pharmacy. I have enclosed a copy of the list of PBAC members which includes the members' academic qualifications." 137 Pfizer's solicitors regarded this as an inadequate response. By letter dated 26 August 1999 they sought further information about "expert evidence provided by Committee members". Mr Threlfall replied on 27 August 1999. As relevant to this topic he said: "Members used their expertise in evaluating the data presented and the claims made and understanding how the drug might be used in the market and the impact that PBS listing would be likely to have on usage and on cost to the PBS." 138 Mr Downes, in his submissions on this issue, commented that the s 13 statement, on its face, does not appear to have been drawn up by lawyers. I would concur with this assessment. In my view para 2.5 of the s 13 statement does no more than say, in lay terms, that the expertise of Committee members was used to inform their decisions about matters within their area of expertise. It is almost inconceivable that individual Committee members would have come forward and given formal evidence about matters relevant to the submission. Indeed the subsequent correspondence between Pfizer's solicitors and the PBAC makes it perfectly clear that this did not occur. 139 No objection can be taken to the fact that Committee members drew on their own expertise when assessing Pfizer's submission. As Wilcox J said in Minister for Health v Thomson (1985) 8 FCR 213 at p224: "The respondent further argues that the Committee denied him natural justice by using its own experience and expertise to determine an appropriate frequency of visitation. Although the Committee acknowledged that it did use its own experience and expertise in coming to its conclusions, it does not follow that any breach of the rules of natural justice thereby occurred. By virtue of the provisions of s 80(2), only medical practitioners may be appointed to the Committee and it is only reasonable to assume that the respondent was at all material times on notice that the members of the Committee would be likely to make use of their own expertise and experience in such matters: see R v City of Westminster Assessment Committee; Ex parte Grosvenor House (Park Lane) Ltd [1941] 1 KB 53 at 69; cf Keller v Drainage Tribunal and Montague[1980] VR 449 at 453. The submission of the respondent is tantamount to saying that the rules of natural justice insist that the Committee should not proceed to a conclusion until it had first shown a draft of its report to the respondent and invited his comments thereon. In my opinion, the application of notions of fairness in the present circumstances does not require such an extreme step: see National Companies and Securities Commission v News Corporation Ltd (1984) 58 ALJR 308." 140 Finally under this head, Pfizer urges that the Committee unfairly took into account, in declining to make a recommendation, the absence of a head-to-head trial. This was unfair, it is suggested, because the Guidelinesstated that there was no requirement for head-to-head randomised trials, and where these trials were not available other forms of evidence would be accepted and given full and proper consideration. 141 The main body of the Guidelines discusses head-to-head trials in the following terms: "2.2 Listing of all comparative randomised trials The PBAC has a strong preference for economic evaluations that are based on so-called 'head-to-head' randomised trials that directly compare the proposed drug with main comparator. These will not always be available, in which case an analysis of two sets of randomised trials involving a common reference represents a possible alternative (see Section 2.5 for further information). It is recognised that randomised trails are not always available (for example some drugs for cancer or rare diseases). However, without any evidence from randomised trials, it has often proved difficult to determine whether there is a clinical or economic difference between the proposed drug and the main comparator." 142 In "An Addendum on Interpretation", at the front of the Guidelines, the following passage appears: "The place of head-to-head randomised trials that directly compare a proposed drug with its main comparator in relation to other forms of evidence (see Section 2.2) There is no absolute requirement for head-to-head randomised trials. Where no head-to-head trials are available, other forms of evidence will be accepted and given full and proper consideration. There is a clear preference for evidence from head-to-head trials where these are available. There is no expectation that companies will carry out a head-to-head trial in Australia or elsewhere solely for the purpose of an economic evaluation for submission to the PBAC." (emphasis in original) 143 In my view there is no substance in Pfizer's complaint under this head. As the reasons for the PBAC's decision make clear, it was not the absence of head-to-head trials between sildenafil and alprostadil which primarily concerned the PBAC. The absence of such trials was perfectly explicable, given that sildenafil is an oral therapy and alprostadil is injected. The PBAC's major concern, which was communicated to Pfizer on numerous occasions, was that the data which was made available to it did not enable direct comparisons to be drawn between the effectiveness and cost of the two therapies. It was this concern which was expressed in the PBAC's decision. I refer in this regard to the various communications between the PBAC and Pfizer on this issue which I discussed in relation to Pfizer's complaint that the PBAC failed to take a relevant consideration into account. I think I need do no more than refer to the fact of that correspondence as establishing that this complaint cannot be made out.

Was the PBAC's decision so unreasonable that no reasonable person could have reach it? 144 Pfizer claims that the PBAC's decision was so unreasonable that no reasonable person, acting within jurisdiction and according to law, could have come to such a conclusion. This is generally known as "Wednesbury unreasonableness". Pfizer relies on three matters, which it says are both independent and cumulative, to establish Wednesbury unreasonableness. I shall discuss each of them in turn. 145 The first matter arises out of inquiries made by the PBAC as to the possibility of tightening the indication for the use of alprostadil in an endeavour to restrict its use to people for whom it is medically necessary. It will be recalled that Mr Threlfall wrote to the Urological Society of Australasia on this issue. Similar inquiries were made of other organisations such as the Australian Association of Neurologists and the Cardiac Society of Australia and New Zealand. Pfizer's complaint, as I understand it, is that the PBAC could have made similar inquiries in an endeavour to limit the use of sildenafil, and that its failure to do so was unreasonable in the circumstances. 146 I find it difficult to see how this head of complaint relates to the issue of Wednesburyunreasonableness. Alprostadil had been available as a pharmaceutical benefit under Part VII of the Act since 1996. It seems that Pfizer's submission relating to sildenafil brought the situation regarding alprostadil to the PBAC's notice, and triggered the PBAC's concern as to the probable overuse of alprostadil. It therefore made inquiries in an endeavour to ascertain whether the position could be rectified. This matter was discussed at the PBAC meeting in March 1999. In the event it was decided that the indication for alprostadil should remain unchanged. Accordingly, the PBAC's inquiries came to nothing. 147 In my view the requests made by the PBAC were entirely reasonable in the circumstances. I can find no basis for Pfizer's complaint that it was unfairly treated as a result of this sequence of events. 148 The second complaint under this head relates to the PBAC's failure to exercise its power, pursuant to s101(3C), to specify particular circumstances in which prescriptions for sildenafil might be written. This matter has already been discussed in relation to Pfizer's claim that the PBAC failed to take a relevant consideration into account. The complaint under this head is that the PBAC's failure to exercise its powers under s 101(3C) was based on unreasonable grounds. 149 The possibility of restricting the number of prescriptions for sildenafil was discussed by the PBAC at its June 1999 meeting. Under the heading "Discussion", the minutes contain the following passage: "the proposal to limit the number of prescriptions via the authority required mechanism was also not considered to be an effective means to assist better targeting.". Pfizer's submission, as I understand it, is that this was an unreasonable conclusion as "there was no basis for assuming that medical practitioners would prescribe sildenafil where it was not indicated" (applicant's submissions p28). 150 I have difficulty in understanding this submission. The PBAC's concerns relating to the likely overuse of sildenafil, and its doubts as to the effectiveness of limiting the number of prescriptions to be authorised, related not to the perceived irresponsibility of medical practitioners, but to the problem of "doctor shopping". This was clearly communicated to Pfizer. Indeed Pfizer's re-submission, by its own terms, set out to "implement new procedures in conjunction with the Health Insurance Commission, to facilitate proper prescribing and to prevent leakage ('doctor shopping')". The PBAC at no time suggested that any benefits to be derived from limiting the number of prescriptions might be circumvented by the activities of medical practitioners, but rather by those of over-enthusiastic patients. 151 I can find no substance in this ground. 152 The final matter raised under this head is set out at p29 of the applicant's submissions in the following terms: "As to the third basis, there was no ground for concluding that alprostadil was meeting the needs of the targeted population or that alprostadil injections were available to treat patients where use was clinically necessary and the Committee's own actions in authorising the possibility of tighter restrictions to limit the use of alprostadil to particular patient groups itself denied the reasoning adopted by the Committee: see Agreed Bundle 301." 153 This ground was re-formulated at the hearing as a complaint that the PBAC used wrong criteria when it compared the effectiveness of sildenafil and alprostadil. The literature makes it clear, Mr Robertson submits, that patients often discontinue using alprostadil after a short time because of life-style issues connected with the nature of the therapy. The effectiveness of the therapy, he says, should be assessed on a long-term basis and should therefore take account of patient acceptability of the drug and the extent to which its use is maintained over an extended period. The PBAC had assessed that sildenafil, although not as effective as alprostadil, was more acceptable to patients. The matter of acceptability should not have been treated as a separate issue, according to Mr Robertson, but should have been taken into account when considering the relative effectiveness of the two therapies. Had this been done, sildenafil would have been seen to be more effective than alprostadil. 154 The effectiveness of a drug can be measured in a number of ways, as this case illustrates. It will essentially depend on the outcome measures which are adopted. For this, the PBAC is largely dependent on the material provided by the sponsor in its submission. The problem in this case, as already indicated, is that Pfizer's submission contained different outcome measures in relation to alprostadil and sildenafil. Nevertheless the PBAC sought to compare the effectiveness of the therapies involving the use of the two preparations. I do not see how its failure to take account of patient acceptability or to use long-term measures as a criterion of effectiveness, can be categorised as unreasonable. It certainly cannot, in my view, amount to Wednesbury unreasonableness. 155 It follows that none of Pfizer's complaints under this head have been made out. It also follows that no reviewable error has been demonstrated in the PBAC's decision. The application will be dismissed. The formal orders I make are as follows: 1. The application be dismissed. 2. The applicant pay the respondents' costs.

I certify that the preceding one hundred and fifty-five (155) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mathews.

Associate: Dated: 20 March 2000 Counsel for the Applicant: A Robertson SC and S Gagelar

Solicitor for the Applicant: Freehill, Hollingdale & Page

Counsel for the Respondent: G Downes QC and S Lloyd

Solicitor for the Respondent: Australian Government Solicitor