Life, death and millions of dollars in drugs – but what's the cost? Political Reporter Stacey Kirk reveals the boardroom dealings behind the national Keytruda debate.

Like all good thrillers, this one has an element of secrecy.

Two plots playing out side-by-side – one publicly, the other back stage – the actors in each, acutely aware of lives hanging in the balance.

ROSS GIBLIN/Dominion Post Pharmac operations director Sarah Fitt gives a glimpse into the cut-throat world of a professional drug negotiation.

The public side of the Keytruda debate is well traversed; a small but vocal group of terminal cancer sufferers beginning a grass-roots campaign to pressure national buyer Pharmac to fund a new-age (very expensive) medicine.

Labour politicians seize on the issue, dine with drug executives, collect signatures and vow they would force Pharmac to fund the drug.

READ MORE:

* Pharmac given $50m total funding boost between Government and DHB funding

* Govt signals Pharmac funding boost, but won't override Keytruda decision

* Big Pharma: The price of life and the cost of silence

* That was then, this is now; a tale of two drug debates

* NZ funds pet projects but not life-saving drug treatment



ROSS GIBLIN / FAIRFAX NZ Pharmac Operations Director Sarah Fitt says the negotiations over Keytruda where not too far removed from any drug negotiation. Being so dependent on the Government's budget announcement threw up a few new challenges.

The Government declares it learned from past mistakes when it did the same (in Opposition), by interfering in the decision over Herceptin.

Some of the patients died before they could access Keytruda.

Pharmac didn't succumb to the pressure.

Cameron Burnell / Stuff.co.nz Prime Minister John Key, Health Minister Jonathan Coleman and Pharmac Chief Executive Steffan Crauzas announce a $39m increase annually to Pharmac funding, back in May. Little did media know at that presser, Pharmac was also delivering the bad news to Merck Sharp and Dohme in a conference room on the floor above.

That is an important point in the plot to mark, as it goes to the heart of the agency's ability to go head-to-head with some of the world's toughest negotiators in pharmaceutical companies.

Keytruda was ultimately granted funding. Was it on Pharmac's terms?

For the first time, documents obtained under the Official Information Act, detail the cut-throat brinkmanship of a multi-million dollar drug deal.

DAVID WHITE / FAIRFAX NZ Pharmac CEO Steffan Crausaz, kept his distance from negotiations. But delivered the news of a major funding increase to Pharmac, just before the budget.

RIGHT UNDER THEIR NOSES

To understand how Pharmac and maker of Keytruda – Merck Sharp and Dohme – reached a deal, it's best to start at the end of the public saga.

The country's media were gathered at Pharmac's central Wellington office, awaiting a "pre-budget announcement" on May 4.

Merck Sharpe and Dohme director Paul Smith.

Following months of vociferous, and at times venomous debate, it was largely expected the Government would give a massive funding boost to Pharmac and allow it to make its own funding decisions.

Pharmac chief executive Steffan Crausaz sat alongside Health Minister Jonathan Coleman and Prime Minister John Key to spell out what an extra $50 million would be buying.

Keytruda was not on that list. Pharmac had in fact decided competitor Opdivo could point to better survival results for terminal melanoma patients, and greater value for money.

What no one knew, was at that very moment in a conference room just a floor above, Crausaz's negotiating team was on a conference call to Merck, informing them their drug had not made the cut.

"It was very carefully orchestrated, that we would phone them so they heard it from us, rather than the media," says Pharmac operations manager Sarah Fitt.

"But we couldn't tell them before, because obviously it was budget sensitive and the Prime Minister has to make that announcement."

THERE CAN BE ONLY ONE

Flash back six months, and the documents show that Merck, along with competitor Bristol Myers Squibb, were competing for a single contract.

"Obviously having two agents does make it a better situation," Fitt says.

And Pharmac was clear up front, that the two agencies were going head-to-head.

"Also we were very clear with both of them that this was completely budget-contingent.

"As far as a normal budget would go, we wouldn't have enough headroom to be able to fund these medicines," Fitt said.

The stakes were high, and money was tight – not unusual in the slightest, say both parties.

The documents show that Merck NZ flew top global executive Jannie Oosthuizen out early on in negotiations. That was "in light of the extraordinary nature of the offer that we will be presenting", said Merck NZ director Paul Smith, in an email to Pharmac, dated January 25.

It was only an opening play, so whatever that price, it would not be low enough for Pharmac.

A letter signed by Oosthuizen following the subsequent February 9 meeting is highly redacted, but a proposal from Pharmac to Merck, dated February 29, lays out some starting terms.

The drug was to be publicly listed at $2340 per 50mg vial – although that was not the price Pharmac would actually pay, which remains confidential.

The proposal detailed which patients would be eligible for the drug, and the criteria against which progression of their disease would be measured to continue treatment – standard stuff.

In a letter dated March 9 to Pharmac's therapeutic group manager Danae Staples-Moon, Merck's market access manager Mike Hartevelt declined the offer.

"We have considered your proposal carefully and regret to inform you that cannot accept it as it does not reflect the value Keytruda offers in late stage melanoma."

Hartevelt also detailed concerns there was no provision to allow for "pseudo-progression" of a disease – a rare but documented occurrence whereby a tumour could appear to swell or grow, before it actually reacted positively to a treatment.

A revised proposal however, this time from Merck to Pharmac on March 22, included a pseudo-progression clause.

But while Pharmac was open to gathering more research, it seemed a bridge too far – a process too corruptible by subjectivity and emotion – to decide who got to continue with the drug.

By this stage, the clock was ticking.

Pharmac was requiring signatures on contracts, by April 19. A provisional agreement was amended at least twice between April 5 and April 15, and eventually signed by both parties on April 20.

Negotiations with Bristol Myers Squibb continued to run in parallel, and both agreements were given to Pharmac's board to sign off on.

THE GROUND SHIFTS

Back to May 4. Above the heads of the country's media, Merck executives Smith and Hartevelt were being told of the announcement as the Prime Minister was informing the country.

That included that Pharmac had made the decision to progress with Bristol Myer Squibb's Opdivo medicine, but it would reopen negotiations on Keytruda.

File notes recorded by Pharmac, from that phone call, show Pharmac's board had instructed the agency to "seek improved commercial terms" with Merck.

Of that day, a spokeswoman for Merck said the announcement was surprising but the company was pleased for melanoma patients.

The medical need for a late-stage melanoma treatment had been all but filled by that stage. It put Pharmac in a better position to drive their terms harder on Keytruda.

In fact, file notes following a later phone call on May 17, showed the first evidence of direct haggling over price.

It was noted that Pharmac's pharmaceutical funding manager Lisa Williams had responded to a question from Smith about what Pharmac was looking for, by saying Merck had "seen our counterproposal and we were looking for somewhere more towards that price".

Just over a week later Merck came back with a proposal.

Much of it remains confidential, and while Merck was happy to stick with the pre-budget day access criteria, the company did have one extra request, which the documents outline.

"... Any given patient may have access to only one of the two" medications.

To what extent such a clause may have benefited Merck, given Keytruda had better name recognition, is unclear.

Pharmac appeared not to buy it, offering a counter-proposal on June 8, which reserved the right to allow patients who may not have responded well on one drug, to try the other as an alternative.

It was swiftly followed up with a phone call questioning why Pharmac needed to consult on the proposal – given it had already consulted on Opdivo, which was the same class of drug.

Hartevelt also made it known that he was aware Pharmac's board had met the night before, and approved Opdivo past the final hurdle, before it had been announced.

Corporate investigations afoot?

No, an errant tweet – which Pharmac has since confirmed was removed immediately after.

THE FINAL PLAY

In all good stories there's a climax; the part where hope seems lost, before equilibrium is restored and things seem to work out.

By this time, the public cast of players had all but dispersed – Pharmac was, after all, now funding a similar drug in Opdivo, for late stage melanoma sufferers.

The drama in the wings however, appeared to be reaching a head by June 13.

That was when Merck declined to accept Pharmac's June 8 proposal and countered with another.

It was, in return, shot down by Pharmac's senior therapeutic group manager Geraldine MacGibbon.

"We have considered (Merck's) proposal and, unfortunately, we cannot accept it," she wrote on June 14.

Part of that email is redacted, but she goes on to say Pharmac's June 8 proposal remained open for consideration, but Merck would need to agree to it by the end of that week.

Frustration was setting in.

It was evident in a followup email from Hartevelt the next day, which addressed Pharmac's refusal to lock patients into a single medication.

"For the avoidance of doubt, although Pharmac and some clinicians appear to believe that it is appropriate to switch patients between [Opdivo] and Keytruda, this position is not shared by Merck.

"Should Pharmac initiate a competitive process that would likely result in the wholesale shift of patients from [Opdivo] to Keytruda, it is unlikely Merck would participate in the process," Hartevelt said.

He also upped the ante.

"Merck has received enquiries from patients regarding the comments made by Pharmac in various releases about continuing to work with Merck. To date, we have responded to such enquiries stating that we continue to work with Pharmac and are hopeful of a listing soon.

"However, if we are not able to agree in time for a 30 June consultation, we consider it appropriate to communicate that we do not anticipate Keytruda will be available for melanoma in New Zealand."

If there was any bluff, it was called by MacGibbon the following day when she seemed all too happy to close the book on negotiations.

​"We had been hopeful that we could reach an agreement with Merck for the listing of pembrolizumab, and Pharmac might have been prepared to consider a counter-proposal for a net price of pembrolizumab that was closer to the figure we outlined in our letter of 8 June.

"However, you have made it very clear that the pricing offer in your letter of 13 June is Merck's final offer so, unfortunately, it seems clear that we will not be progressing a proposal to list pembrolizumab."

Then came a phone call from both Smith and Hartevelt of Merck, to Pharmac's negotiating team.

According to the file notes, written by MacGibbon, Merck felt Pharmac were not showing any signs of reciprocity.

It's not clear how far past the starting blocks they'd reached, but fair's fair – give us something to work with, was the message.

"He said he had been taking all our (Pharmac's) proposals communications to global and global had made it clear that Merck's bottom line pricing could not move unless Pharmac had also shown some movement on pricing, which had not happened," MacGibbon recorded.

If Pharmac would agree "up front" to accept the next price that was offered by Merck's global office, and not try to haggle them down further, then perhaps an agreement could be reached.

Except Pharmac was never going to agree to whatever price Merck's global head office had determined, before Pharmac had seen it.

But it appeared to offer some price movement for Merck's executives to take back to their global team.

MacGibbon also offered the assurance that if Merck's global office agreed, then Pharmac would not try to bargain them down further.

The price was accepted. Six days later, on June 23, a deal was signed with Merck to fund Keytruda in addition to Opdivo.

CURTAIN DROPS

A spokeswoman for Merck said the company was limited in the additional context it could provide, due to commercial sensitivity.

But both sides agreed that despite this negotiation happening close to the backdrop of a Government Budget announcement, it was a fairly typical negotiation.

"Negotiations with Pharmac are always dependent on budget; therefore there are no particular extra challenges in this case," she said.

Asked how the company had to adapt once Pharmac had filled the medical need by funding Opdivo first, Merck said from that point it was "focused on providing a clear path for patients who had been paying privately for Keytruda".

For Pharmac, Fitt said the public debate played no part in boardroom discourse.

"Obviously people are aware of it going on - you can't be immune to it. But it doesn't actually change the process over negotiations."

Did Pharmac get a good price?

It may be safe to assume it did – Pharmac was happy to walk away, after all.

But New Zealanders will never really know; pharmaceutical companies would shun dealing with Pharmac again, if their price was leaked to the rest of the world.

What the documents show is each side's approach, their incentives, and the pressure they all come under to get a result.

That, and the price of losing an advantage.